Trump/Musk Recession

If we define an economic recession as two straight quarters of negative GDP, then we must consider it likely that a recession is now underway (Q-1 2025) and that it will continue for at least several quarters this year.

The latest GDPNow forecast from the Atlanta Federal Reserve projects the change in real GDP at -2.4% for the first quarter of 2025.

And President Trump admitted today in a Fox News interview that not even he can rule out an economic U.S. recession on the near-term horizon. 

While it may not matter exactly what will have caused this upcoming recession, here are three of the potential contributing factors: 

1. Elon Musk and his DOGE actors have been and continue to cause major negative disruptions in Government spending and employment.

2. President Trump's threat to impose major tariffs on our largest  trading partners has generated extraordinary levels of uncertainty in the business community and also among already cash-strapped consumers.

3. Major changes in U.S. foreign policy by the Trump Administration have shaken the "global world order" and have introduced potential doomsday scenarios that could negatively impact all the populations on planet Earth.

I am not sure if any investments are safe right now. Principal preservation must be the very highest consideration in any portfolio planning until the dust settles (which may not be for at least several quarters).

I think that short term Treasury securities are still safe, but I am not even sure about this once incontrovertible statement.

Gold, Silver, and precious metals stocks would seem an obvious choice in this expected "risk off" environment. However, if there is a liquidity squeeze (as I now project), then even these "safe haven" investments will come under downside pressure.

The U.S. stock market is already under significant selling pressure, and I continue to expect a serious bear market to unfold which will test the lower limits of everyone's imagination on the downside.  A 20% correction now seems likely, and I would not rule out a decline in the major indices of at least twice this projected loss.

Bottom Line: Cash is King for now!

 

Trump's Election Is Now Fully Discounted in U.S. Stock Prices!

Just a quick note here regarding Trump's successful return to power as the next President of the United States.

Yesterday, Wednesday, November 6th, U.S. stock prices rose sharply, U.S. Treasury securities fell sharply, and gold and silver prices also fell sharply.

And about halfway through today, the S&P 500 topped out at about +0.75% on the day, the Nasdaq Composite topped out at about +1.5% on the day, and the DJIA and Small Cap stock indices have been flirting with the zero line after monumental gains yesterday. Bond and Precious Metals prices have also bounced modestly so far today.

The Federal Reserve just lowered its Fed Funds rate target by 25 basis points, which was consistent with most Wall Street forecasts.

What now? It looks to me like all the potential positive news relating to Trump's victory is now fully discounted in stocks, bonds, and precious metals prices. 

Bottom line: I believe that U.S. stock prices are now at or very near a major top. I see safety in bonds and precious metals related investments. Elon Musk is likely to accept an invitation from the new Trump administration to be the "Budget Czar" with a potential mandate to cut up to $2 Trillion from the Federal Budget. Musk himself says there will be temporary dislocations (i.e. "Pain") for many Americans during this process, but he says that in the long term most Americans will be better off. I doubt whether most Americans will be better off, but I do believe the "pain" portion of Musk's comments. Consistent with the pain that is surely forthcoming, an economic recession is now likely to begin in the first half of 2025. Forward-looking stock market investors will soon see the early signs of a recession and will exit stocks in earnest over the very near term.

We're not in Kansas Anymore. Or Are We?

In August 2022, voters in Kansas overwhelming rejected a statewide referendum that would have made abortion illegal in Kansas. The final vote was 59% to 41%. What makes this vote so interesting to me is that the polling ahead of this vote was split 50-50! This was a monumental miss for pollsters!!

Why is this important today?

Most of the "fair and balanced" polls currently show Harris tied with Trump in the race for President of the United States. The polls are effectively tied Nationally AND the polls are even effectively tied overall in the 7 major electoral college swing states. 

The key questions that must be asked now are "how good are the polls", is this contest really tied, and does the abortion issue mean as much in the national contest as it did in Kansas in 2022 and other RED states in the two years since? In other words, will there be any significant "crossover" vote among Republican voters because of the abortion issue (or any other Trump-related questionable acts, comments, or policies)? Let's review some relevant polling history.

In 2016, there was an apparent under-sampling of Trump voters in most major polls which resulted in a Trump victory against Hillary Clinton. In 2020, there was still a modest under-sampling of Trump voters, but Joe Biden still managed to win. In 2022, there was a clear under-sampling of Democratic voters as the so-call "Red Wave" never really unfolded and the Democrats managed to hold onto their majority in the Senate and only just barely lost their majority in the House.

Again, why is this important?

I strongly believe that the November 2024 election results will look more like 2022 results as compared to 2016 results. Here's why! Moderate Republicans do not want to admit that they will NOT be voting for Trump. In fact, they may actually vote for Harris. Please keep in mind that every lost Republican vote for Trump is actually a 2-vote swing if he or she "crosses over" and votes for Harris. And it is my view, that many Republican voters who don't want Trump, but can't justify a vote for Harris, may actually stay at home or at least NOT vote for President. If only 2% of Republicans actually vote for Harris instead of Trump (because of 100 different rational reasons), Harris would then win in a landslide, which I now predict!!

The political betting sites (led by Polymarket.com) now show Trump as a 64% probability to win, with Harris just at 36%. Predictit.org shows slightly better odds for Harris, but not by much. Trump is at 59% to win on Predictit, while Harris is only at 44%. Not sure why the total is greater than 100%, but there it is none-the-less (this is not a misprint). It is not hard to speculate that the PolyMarket betting odds are impacting the Predictit betting odds in favor of Trump. Americans are not allowed to place bets on the PolyMarket website where large bets are allowed, but they are allowed to make smaller-size bets up to $850 on the Predictit website, which then creates a minor arbitrage between the two websites. Uninformed very large bets for Trump have recently been placed on the PolyMarket website as compared with less favorable Trump bets from better-informed U.S. speculators that are currently being placed on the Predictit website. However, on balance, all the bets still favor Trump to win.

Please keep in mind that in 2016, Nate Silver's Five Thirty Eight website had Trump's chances of victory at ONLY 29%!! And this probability of a win for Trump at just 29% was actually among the highest of all polling services at that time!

Again, why is this important?

U.S. stock investors appear to be betting big on a Trump victory. I believe that recent record highs in most major stock market indices are discounting a Trump victory and all that comes with it (i.e. lower corporate taxes and more business- friendly Federal regulations for corporations). However, if Harris wins, as I strongly believe will be the case, then equity prices will give up ALL their recent gains and more. The correction in stock prices will probably be greater than 10% if Harris wins. And even if Trump wins, I actually believe there will only be modest upside from here, if any!

Bottom Line: Investors should exit U.S. stocks now or at least reduce their allocation to stocks in a meaningful way! Cash is king!!

Early Xmas Gifts From Donald Trump

Former President Donald Trump is now promising almost a dozen different tax cuts if he is elected President on November 5th. 

Of course, there isn't much talk from the Trump folks regarding how to pay for all these tax cuts. And to add insult to injury, Mr. Trump is proposing massive tariffs on almost everything that is imported into the United States. These across-the-board tariffs would cost U.S. consumers dearly as price inflation on almost everything would be almost impossible to avoid.

Most major U.S. stock indices are now at record all-time highs. It's not hard to speculate that this latest surge in share prices is related to Mr. Trump's recent uptick in the election polls. Who doesn't like the idea of tax cuts? Of course, their negative impact on the Federal deficit would be in the trillions of dollars, and passage through Congress would be unlikely at best.

I believe the American people know political "pandering" when they hear it, and I strongly suspect that Mr. Trump's recent uptick in the polls will be temporary and short-lived.

And if the recent surge in U.S. stock prices is tied in part to Mr. Trump's improved standing the polls, then any setback to his campaign is likely to result in a correction in share prices as well.

Even though oddsmakers are now projecting a Trump victory on November 5th, I continue to believe that Vice President Harris will prevail. I also believe that Democrats will retake the majority in the House of Representatives AND that the current majority in the Senate will remain in the hands of the Democrats. 

In the U.S. financial markets, equity prices look vulnerable to at least a 10% correction while bond prices look reasonable (and a safe place to park idle cash).

U.S. Stock Market at Major Top! - Exit Longs Now!!

The great Marty Zweig once said "don't fight the Fed!" And these words of wisdom have mostly worked well for traders and investors forever, it seems. However, I strongly believe that this time may be different. Now there is a phrase that will get you in a lot of trouble. "This time is different!"

In one of the most telegraphed policy shifts in history, the U.S. Federal Reserve is about to pivot from a relatively tight monetary policy to at least minor accommodation with its first cut in interest rates in several years. Most major U.S. stock market indices are at or near all-time highs and many Wall Street pundits are forecasting even higher prices immediately ahead.

The prospect of lower interest rates combined with the current fever among investors for stocks in the "artificial intelligence" space may be justification for hanging on to U.S. equities here, but I see signs of a "Dot Com - like" exhaustion top.

When the Dot.com stocks topped out in January 2000, the Nasdaq QQQ Index fell 83% over the next 20 months. The Dot.com era was certainly unique, but it's not hard to see signs of the same sort of "irrational exuberance" now.

Investors are counting on the elusive "soft landing" in the U.S. economy and therefore "no recession" and no meaningful correction in stock prices. Truth be told, the current Fed gets high marks for it's policy actions of the last couple of years. However, the Fed may have waited too long to change gears here, and the U.S. and global economies look poised for significant slowdowns that result in growing recession fears. Of course, China is already showing signs of recession which the PBOC seems late in its efforts to stem the tide. 

If you sell stocks here, where can you hide your capital? Intermediate-term U.S. Treasury securities look good to me here, as do precious metals mining stocks.

Nasdaq 100 Index (QQQ) Weekly Chart

S&P 500 Index (SPY) Weekly Chart

Major Gold Miners ETF (GDX) Weekly Chart

The Federal Reserve - Out of the Box Forecasts

In a controversial research report released this past Friday, Apollo Global Management's Partner and renown Chief Economist Torsten Slok said that he now believes that the U.S. Federal Reserve may NOT cut interest rates at all in 2024. To say that this is "out of the box" thinking is an understatement! The consensus view among Wall Street pundits now is for three 1/4-point cuts in the Fed Funds target sometime over the next 10 months probably beginning in May or June 2024. What's even more remarkable about Mr. Slok's forecast is that less than 9 weeks ago, the consensus view was for six 1/4-point cuts in 2024.

Given Mr. Slok's excellent forecasting record and his extraordinary resume, it would be foolish not to at least consider his remarkable view.

Having seriously considered Mr. Slok's forecast here and now, I can write without hesitation that I don't agree with it and I will even make the bold suggestion that the probability that Mr. Slock is correct here is near zero!

Over the last month, New York Community Bank (NYCB) shares have fallen from just over $10/share to near $3/share as exposure to the commercial real estate market seems to have adversely impacted this regional banks balance sheet and its potential profitability. This bank's CEO stepped down late last week and rumors of potential reporting improprieties have surfaced.

It's not a reach here to suggest that given the general weakness in the commercial real estate market nationwide, NYCB's troubles may very well be the tip of the iceberg for regional banks generally.

Here in Chicago, it's not hard to see the evidence first hand. On State Street, Chicago's "Great Street", 50% of the storefronts are now vacant!

While Jamie Diamond at JP Morgan, and others like him, would like managers to return to their cubicles at corporate offices nationally, managers are reticent to cooperate given the COVID-related change in culture to working from home or at least working in some sort of "hybrid" situation (split home and office hours).

To think these problems in the commercial real estate market will disappear quickly is fraught with risk and denies the obvious!

While the current consensus view on three 1/4-point interest rate cuts in 2024 is probably correct, if NYCB's troubles are not isolated to New York, then six 1/4-point cuts could quickly be back on the table for the Federal Reserve to consider.

And one last very important question to consider please: IS THE U.S. FEDERAL RESERVE TRULY AN INDEPENDANT AGENCY? In normal times, the answer may be "YES", but these are not normal times.

If I am right, and if in fact politics are now a factor in the thinking of the Federal Reserve, what do Fed officials really think about the possibility of a 2nd term by Donald Trump. Surely they must know that if elected in November, Mr. Trump will replace the current Chairman of the Federal Reserve and everyone else he can to control this key institution. Given that my premise is right, that politics are now a variable in Federal Reserve monetary policy, then the current Fed will use ANY weakness in the economy (any weakness at all) from here until the election as an excuse to lower interest rates (in order to favor the re-election of Joe Biden)!

For traders and investors, the path forward is simple: Buy gold! Buy Silver! Buy Gold mining shares! Buy Silver mining shares! NOW!!

A Major New Bull Market in Gold Prices is Now Underway!

Just a quick note today (Sunday morning, October 29th, 2023).

The December Gold Futures Contract closed above $2,000/oz this past Friday.

Extremely rare Monthly Chart Buy Signals have now been triggered within my proprietary computer trading system in both the Major and the Junior Gold Mining Shares ETFs (GDX and GDXJ, respectively - see charts below).

While it's not hard to see why gold and precious metals mining shares are attracting attention right here given the current global state of affairs, I see this month's bullish price action in gold and related precious metals investments as more than a short-term tradable event.

I don't think it's a stretch right now to forecast gold at $3,000/oz and silver at $50/oz over the next 14 months (before the end of December 2024). Of course, if this forecast is right, precious metals mining shares could easily soar 500% or more over the next year!

Major Gold Mining Shares ETF (symbol GDX) Monthly Chart Buy Signal

Junior Gold Mining Shares ETF (symbol GDXJ) Monthly Chart Buy Signal

The Perfect Storm: Buy T-bonds, Buy Gold, Sell Stocks, Sell the Dollar

Just a quick note today regarding the next big wave in the U.S. Financial Markets.

Despite a 500 basis point hike in its Fed Funds interest rate over the last two years, the Federal Reserve continues to saber rattle on the hawkish side for its monetary policy. 

The yields on the 10-year Treasury Note and the 30-year Treasury Bond are both near 5% now, and U.S. 30-year mortgage rates are approaching 8% now.

And even though the U.S. domestic inflation rate has fallen from over 9% a year ago to near 3% now, the Fed remains hawkish with its rhetoric and with its monetary policy actions.

In the not so distance past, economists were generally in agreement that changes in monetary policy had at least a 6-month to 9-month lag in terms of its full impact on the economy. However, this Federal Reserve seems unwilling to wait 6 to 9 months for anything, and instead is dead set on breaking the back of inflation WITHOUT the obvious negative potential impact on the economy.

I see the current state of affairs as a perfect storm ahead of a major inflexion point.

U.S. stock prices have weakened recently, and I think they will continue to weaken over the next several quarters, at least.

U.S. Treasury yields are probably at or near their peak for this cycle, which means Treasury prices (especially on the long end) will probably soon begin a major bull market.

As the economy weakens, led by a dismal real estate market and a financially stressed consumer, foreign exchange traders will begin dumping U.S. dollars in full expectation of a reversal in Federal Reserve policy.

And when the U.S. economy crumbles (in direct response to its overly tight monetary policy), the Fed will "blink" and begin cutting interest rates in an attempt to avoid a full blown economic recession.

As the Federal Reserve signals a change in monetary policy, Gold and Silver prices will soar, with precious metals mining stocks poised to double and triple over the next six months.

For tracking purposes, here are the closing prices of the key ETFs and Indexes on the afternoon this post was written (October 4, 2023):

S&P 500 ETF (symbol SPY)    424.66    (Moderately Bearish is the Forecast)

U.S. Long Treasury Bond ETF (20+ Years - symbol TLT)    86.26  (Bullish is the Forecast)

Gold ETF (symbol GLD) 169.14     (Bullish is the Forecast)

Silver ETF (symbol SLV)     19.31    (Bullish is the Forecast)

U.S. Dollar Index (symbol DXY)    106.80    (Bearish is the Forecast)

Time to Exit U.S. Stocks and Gold, Too!

I consider myself lucky to have not lost any money on recent long-side trades in U.S. stocks and gold-related investments.

While I still think the U.S. Federal Reserve will "pause" in its current rate hike path, there appears to be more damage to the banking system than I previously thought, and a crisis of confidence could soon derail the overall economy and stock prices with it.

It's time to exit all stock positions, including gold-related investments, at today's close (Monday, March 20th) in favor of a sideline stance.

Could A Sustained Rally Now Be Underway in U.S. Stock Prices?

The #1 most reliable guide to winning in the stock market is "Don't Fight The Fed!". Since almost every Fed Governor and almost every Fed President are standing firmly in line behind Fed Chairman Powell's current hawkish stance on monetary policy, we should therefore be out of U.S. stocks now! RIGHT? 

WRONG!! 

It is my strong view right now that the Fed is about to "pause" in its self-proclaimed path to higher short term interest rates, and that except for the possibility of one last 1/4 point hike, the next multiple change in short term interest rates will be to the downside. 

BIG money in stocks is made when you can see the next major turn in Fed policy, especially if that change is "imminent" and not well discounted by investors. Imminent is defined as 6 months or less. 

The Fed is now looking for overwhelming evidence of "disinflation" before pausing in its path to higher rates. However, almost all the economic data that I am looking at right now reflects actual "deflation" year-over-year. 

If this is true, then U.S. Government's reported inflation indicators are actually lagging real world data and they will soon catch up! And when they do, U.S. stock prices will soar (in response to a major reversal in the Fed's monetary policy from hawkish to dovish)!!

Bottom line: It's time to jump on the Northbound train in U.S. stocks! And it's time to expand holdings of precious metals mining stocks!!

U.S. Stock Market Looks Tired

Just a quick note here this afternoon, Sunday, November 27, 2022.

The U.S. stock market looks tired to me after a decent "counter trend" rally since the reaction lows of mid-October. The popular S&P 500 ETF (symbol SPY) has rebounded 15.58% since its intra-day low as posted on October 13th.

As you can see from the chart below, potential resistance to any further advance comes in the form of the overhead (and downward sloping) 200-day moving average line and also a fairly significant downtrend line.

While I am unconvinced that a major new decline will reassert itself here, I do believe that the odds favor at least a consolidation of recent gains if not an actual minor correction to potentially retest the recent lows as set in mid-October.

For some strange reason, the U.S. Federal Reserve seems to be working against the bullish case for stocks with hawkish comments almost daily regarding the near-term trajectory of short term interest rates. While it's obvious to me that a U.S. recession is imminent and that a meaningful peak in inflation has already been posted, Federal Reserve officials seem to feel obligated to warn investors that inflation is still a major problem (when it's not) and that an imminent economic recession is not likely (even though it is).

It might be prudent for traders and investors to exit any long positions now (except gold) in favor of a sideline stance while Fed officials continue to fight the last war (inflation) and not the next war (recession and unemployment).

S&P 500 Index ETF (SPY) with 200-day Moving Average Line

US Stock Market - Buy Signal Triggered on October 13, 2022!

A daily chart buy signal was triggered in my proprietary trading system in the S&P 500 Index ETF (symbol SPY) and also the Nasdaq-100 Index ETF (symbol QQQ) at the close of trading on October 13th, 2022. Despite a downside reversal in most share prices on Friday, October 14th, this latest buy signal remains intact.

Rarely have I seen so much bearish sentiment among often-wrong traders and investors, which must be considered a meaningful contrary indicator favoring a significant bounce in share prices over the very near term.

While the bearish case is compelling for stocks (i.e. hawkish Fed, historically high inflation reports, the war in Ukraine, potential nuclear armageddon, threats from China relating to Taiwan, and more), I believe that most of the potential bad news for stock prices is already discounted at current levels where the S&P 500 is now down about 25% for the year so far. 

Bears outnumber bulls by almost 3 to 1 in the latest sentiment figures from the American Association of Individual Investors, and most pundits and one very loud former U.S. Treasury Secretary are calling for significantly lower share prices ahead. Is there enough "blood in the streets" to justify buying stocks here? Probably Yes!

There is an interesting technical support level that was tested last week in the S&P 500 Index. Fifty percent (50%) of the gains in the S&P 500 Index, from the panic low posted in late March 2020 to the bull market top set in early January 2022, were retraced at one point in last week's price action. Is that enough "blood" lost to serve as a catalyst for a decent rebound here? Again, probably Yes!

Here are two interesting charts for your review:

S&P 500 Index ETF (SPY) with Daily Chart Buy Signal on October 13th

Nasdaq 100 Index ETF (QQQ) with Daily Chart Buy Signal on October 13th

Gold Buy Signal

At the September 30th close, weekly chart buy signals were triggered in the popular Gold ETF (symbol GLD) and in the Gold Mining ETFs (major gold mining stocks ETF symbol GDX and the junior gold mining stocks ETF symbol GDXJ).

While the S&P 500 Index ETF (symbol SPY) fell 3.02% last week, the Gold ETF (GLD) rose 1.08%. Against that backdrop, most gold and silver mining share prices soared!

The Major Gold Mining Shares ETF (symbol GDX) jumped 7.49% last week, and the Junior Gold Mining Shares ETF surged 9.07%.

Bottom Line: A major new bull market in gold, silver, and related precious metals shares has clearly begun. Gold and Silver mining shares could easily double over the next 12 months as the Federal Reserve pivots from its current hawkish monetary policies toward a more neutral-to-dovish posture in the face of increasingly disturbing (recessionary) economic data to be reported on the very near term horizon and over the weeks and months immediately ahead.

Gold ETF (symbol GLD) with Proprietary Weekly Chart Buy Signal

Major Gold Miners ETF (symbol GDX) with Weekly Chart Buy Signal

Junior Gold Miners ETF (symbol GDXJ) with Weekly Chart Buy Signal

Oversold !

The U.S. stock market looks oversold and ready for a meaningful bounce!

Sentiment indicators clearly point to a rebound. There is currently too much bearish sentiment among often-wrong investor groups.

Put volume set an all-time record on Friday, September 23, which stands out as the best contrary indicator in this market at this time.

Traders and investors are understandably fearful of the dramatic hawkish turn from the Federal Reserve in recent weeks following worse-than-expected August inflation numbers.

However, I don't believe that Fed Chairman Powell and his team are ready to back up their inflation-fighting rhetoric with continued hikes in interest rates when recessionary data builds in earnest and when "deflationary" forces begin to prevail over the next few weeks and months.

The obvious best asset play for when the Fed "blinks" is in the precious metals sector, with silver and silver-related mining stocks probably leading the way higher.

Even though gold and silver look best here, "all boats" will rise when the Fed rhetoric changes from hawkish to neutral which I expect will happen over the very near term. The Nasdaq-100 Index will probably lead the way higher in the general market when the Fed turns as tech stocks rebound sharply.

Nasdaq-100 Stock Index Daily Chart with 200-day Moving Average Line

Nasdaq-100 Stock Index Weekly Chart with 200-week Moving Average Line

Last Dance

Just a quick note this evening, Sunday, January 10, 2021.

This will probably be my last update to the SuttonWatch blog after posting for almost 8 years.

On Friday, January 8, 2021, almost every major U.S. stock market index closed at a record high:

S&P 500            3,825

DJIA                31,098

Nasdaq Comp  13,202

Massive ongoing global central bank support for the financial markets and a growing anticipation by investors of new meaningful U.S. fiscal stimulus are the two major pillars of bullish support for stock prices here in the U.S. and, for the most part, in global bourses everywhere in recent months.

The Biden Administration will assume control of the U.S. Executive Branch on January 20, 2021, and most investors now expect another Covid-related stimulus package of at least $1.0 Trillion in addition to the latest $908 Billion just executed.

If you are a U.S. shareholder, what's not to like?

While few would argue that when compared to historical norms, current U.S. stock market valuations are high on almost every metric. In fact, valuations have now approached or exceeded the extraordinary valuations witnessed in early 2000 just before the S&P 500 collapsed by 49% and the Nasdaq Composite Index lost 83%.

Tesla, of course, is the poster child of overvalued stocks right now. Tesla's $834 billion market value exceeds the valuations of the 10 largest automobile companies combined. Tesla now trades at 1,742 times trailing 12-month earnings and 223 times forward-looking 12-month earnings.

Nio, a fast-growing startup in the Chinese electric vehicle market, now sports a valuation of $85 billion, which is 37% higher than General Motors!

Ignoring (just for a minute) the negative potential ramifications of the recent failed Trump-related coup attempt in the United States, and ignoring any possibility of continued related unrest over the very near term, is there anything on the horizon that could stop this historic bull market in U.S. stock prices?

I could list at least 10 possible reasons why stocks might correct over the very near term, but one particular reason seems most important to me right now and therefore most likely to represent the catalyst for a meaningful bear market to begin soon. INFLATION !

For the first time in more than 10 years, TIPS are now trading above 2.0%. TIPS are the best measure of the market's expectation for inflation ahead. Long-term Treasury bonds are now down 3.5% for the new year so far, and higher inflation expectations along with massive new supply of Treasury securities on the immediate horizon are the two major reasons for the decline in T-bond prices this past week.

Is TINA dead? Perhaps not, but if meaningful inflation is about to rear its ugly head, as I think is very likely, then TINA will soon die a quick death. TINA, of course, stands for "There Is No Alternative" to stocks in the current environment of zero% short term interest rates as controlled by the U.S. Federal Reserve. With mid-term and longer-term U.S. interest rates now starting to rise, stock investors will soon face headwinds not discounted in current share prices. Yes, there are now alternatives to stocks, and it won't take much to turn current bullish investor sentiment for stocks into a mad rush for the exits! With NYSE margin debt near record highs and with most stock investors "over-weighted" and over-leveraged in U.S. equities, the first down move off the highs could be precipitous!

Thank you for reading these posts over the last 8 years. Please accept by gratitude and thanks. I wish all of you the very best with your investments ahead!

Thank You Chairman Powell

The Federal Reserve on Thursday (April 9th) announced unprecedented monetary stimulus actions to provide up to $2.3 trillion in loans to support the economy. These actions are in addition to the massive "quantitative easing" purchases of Treasury and Mortgage-backed securities that the Fed has carried out to ease liquidity problems in the financial markets over the last six months.

According to Fed Chairman Jay Powell in comments last Thursday, "Our country's highest priority must be to address this public health crisis, providing care for the ill and limiting the further spread of the virus. The Fed's role is to provide as much relief and stability as we can during this period of constrained economic activity, and our actions today will help ensure that the eventual recovery is as vigorous as possible."

If we add up all the U.S. fiscal and monetary stimulus actions over just the last couple of months (actual and proposed), the number is approximately $5 trillion! Despite these actions, several major Wall Street investment firms are now forecasting declines in U.S. GDP of between 15% and 30% in the second quarter and an unemployment rate that could skyrocket to as high as 20%.

After plunging 35.4% in only 23 trading days between February 19th and March 23rd, the benchmark S&P 500 Index has rebounded 27.3% in just 13 trading days to last Thursday's recovery high. This recovery represents approximately 50% of the total decline from the February 19th all-time record high to March 23rd's reaction low.

In my last column dated March 18, I voiced a rare bullish call based upon sentiment numbers that reflected levels of extreme bearishness that often mark a bottom and also historically high insider buying numbers. Of course, massive Fed intervention to drive interest rates to near zero and to add liquidity to the financial markets allowed for justification to re-enter the stock markets on the long side.

So what now?

Even though investors are often safe by following the old axiom "Don't fight the Fed", I don't believe the current rally in stock prices (even with the Fed's support) can last without at least a test of the intra-day lows posted on March 23rd. In percentage terms, a fresh decline from last Thursday's closing price of 2,790 in the S&P 500 to near the late March low at 2,192 would represent a loss of approximately -20%! And given the uncertainties relating to the potential consequences from the current global pandemic (like massively NEGATIVE Q-2 corporate earnings and NO MEANINGFUL SHARE BUYBACK ACTIVITY), we just can't rule out an even steeper decline in what may be a persistent bear trend that penetrates the March lows before markets stabilize with several months of base building action ahead of the next potential meaningful rebound.

Falling Knives: Is It Time To Pick A Bottom In the U.S. Stock Market?

From its intra-day high at 3,393 on February 18th, 2020, the benchmark S&P 500 Index fell 32.8% to its intra-day low of 2,280 today March 18th, 2020.

You have to go back to October 1987 to find this kind of loss in just 30 days! And in my 45-year experience in trading stocks, I can never remember the day-to -day volatility that we've seen over the last month. 1000-point daily swings in the Dow Jones Industrial Average seem to be commonplace, and 10% single-day moves in individual stocks are now standard-fare.

United Airlines stock was down 30% today, and this company's share price saw a 78% decline from high to low since February 12, 2020.

In just three weeks, the Trump Administration's message on the CoronaVirus has gone from complete denial just three weeks ago to the most dangerous global threat since World War II now. Researchers at Goldman Sachs, a premier global financial giant, are now predicting that as many as 150 million U.S. citizens could be infected with this virus over the next several months.

With all this bad news, is it foolish to think that there may be a meaningful bounce in the U.S. stock market on the immediate horizon? NO, it's NOT foolish! I firmly believe it's now time to buy stocks!! Right now!

The U.S. Federal Reserve is firing all its cannons to fight the current liquidity crisis that has contributed to the massive decline in share prices over the last month. Global central banks now appear to be coordinating (at least tacitly) to support financial asset prices and stem the tide of selling. And now the Trump Administration and the U.S. Congress appear ready and willing to spend at least $1 trillion in fiscal stimulus over the very near term to boost the economy.

While I think precious metals mining shares are ready to lead the market higher, just buying the S&P 500 ETF (SPY) or Nasdaq-100 ETF (QQQ) should give you the diversified exposure you need to eliminate non-systematic risk and provide an extraordinary chance to post significant capital gains over a very short time horizon.

Bloomberg Throws His Hat Into The Presidential Race - Winners And Losers

Michael Bloomberg
Net Worth: $58 billion
Age: 77 years old

Education: BS from Johns Hopkins, MBA from Harvard
Business: Owner & Founder of Bloomberg LP

Philanthropist: He has given $8.5 billion to charitable causes (so far)

Experience in Politics: 3-term Mayor of New York City

Political Bias: Moderate Democrat

Extraordinary credentials to run for President of the United States!

It's not hard to figure out who the biggest loser will be as a result of Michael Bloomberg's entry into the race for President: DONALD J. TRUMP!

With his unlimited pocketbook, Bloomberg will be firing broadsides at Trump every day and every night from now until election day, assuming Trump is able to survive impeachment and that he doesn't resign prematurely from office (which can't be ruled out). And despite loud cries from other Democrats running for President that Bloomberg is attempting to "buy the Presidency", the media will now follow Bloomberg's every move and every word until the Dems make their final choice at the Convention. This gives the former 3-term NY Mayor a national stage to criticize Trump. And it also gives Bloomberg a national stage to advocate for his favorite causes and also his favored political positions.

Former Vice President Joe Biden is the next biggest loser, of course, because Michael Bloomberg will now aggressively challenge Mr. Biden's centrist lane with Bloomberg's own superior centrist plans for growth, job creation, and the rebuilding of America's infrastructure.

Luckily for Mr. Bloomberg, Senator Elizabeth Warren and Senator Bernie Sanders have split the ultra left leaning arm of the Democratic Party. Both candidates are losers with Michael Bloomberg now in the race. Each of these two candidates will now come under intense scrutiny from Michael Bloomberg as being too liberal for the current electorate and therefore unlikely to win the Presidential election against Trump (or VP Mike Pence should Trump resign before election day).

While no one would argue that Michael Bloomberg would love to win the Democratic nomination for President and then go on to beat the Republican candidate for President in November 2020, I don't think that Michael Bloomberg actually thinks he can win either the nomination or the Presidency. My strong view is that the real reason why Michael Bloomberg has entered the race is NOT to win himself, but just to make sure that Donald Trump doesn't win!!

And who, therefore, is the biggest winner as a result of Michael Bloomberg's entry into Presidential Politics? The answer may surprise you. Senator Amy Klobuchar is the clear winner from Bloomberg's entry into the race for President. While I am confident that Bloomberg could win the general election against any Republican if nominated by his party, I see very little probability that Bloomberg will in fact be nominated by his party. By default, therefore, Klobuchar is "the last man standing" in the center lane. The distinguished Senator from Minnesota has ALL the right credentials to be President of the United States, and she is the ONLY reasonable moderate Democratic in the field who can win the nomination AND beat the Republican candidate on election day November 3, 2020. And if Senator Amy Klobuchar selects Senator Cory Booker as her Vice Presidential running mate, the November 2020 election will then be among the most one-sided victories for the Democratic Party in the modern era!

So how does all this shake out with regard to the U.S. stock market?

When the Dems win everything next November 2020 (President, Senate majority, House majority), the Federal corporate tax rate will be increased to near 30% from the current rate of 21%. That's all you really need to know, beside the fact that a major economic recession is on the near-term horizon. As soon as investors figure out that Donald Trump will NOT be President for a second term, U.S. stock prices will fall sharply as "after tax" profits completely collapse!!

And one last note about the U.S. stock market. Has anyone noticed that Apple stock is currently trading at +22.1% above its 200-day moving average line? The S&P 500 is trading at +6.7% above its 200-day moving average line. The Nasdaq Composite is trading at +7.5% above its 200-day MA and the Russell 2000 Index is trading at +5.2% above its 200-Day MA. Given Apple's $1.21 trillion market capitalization right now, any "reversion to the mean" near its 200-day moving average line would result in a dramatic decline in ALL the closely watched benchmark stock market averages because Apple is a component in all of them. Apple insiders are now selling their Apple shares on balance (smart money) and uninformed Wall Street analysts (less than smart money) are almost ALL universally bullish on Apple's stock price with buy ratings, outperform ratings, and overweight ratings on this massively over-bought, over-owned, and over-valued stock. Everyone talks about Apple's monstrous cash position at approximately $100 billion right now, but almost no one is talking about Apple's massive corporate debt at 1.19 x equity. As of September 30, 2019, Apple had $248 billion in liabilities, of which $91 billion was long term debt!

Postscript (late Sunday, December 8th): Given the unexpected strength of the latest U.S. Unemployment Report this past Friday, it seems to me that the Federal Reserve will now lean "hawkish" at this week's FOMC meeting. Since stock investors seem overly complacent right now regarding domestic monetary policy following three straight cuts in interest rates, a hawkish Fed report this week may very well come as a major shock to many investors who are now clearly over-weighted in equities. The U.S. stock market has the feel to me right now that is similar to where we were in late January 2018 when volatility exploded and share prices quickly dropped 10%.

Presidential Politics and the U.S. Financial Markets

After several weeks of riveting testimony, it is fairly clear now that the House of Representatives will vote to impeach President Trump. The timing of this vote is less clear, but a prediction centering on year-end 2019 seems reasonable.

When the House of Representatives finally votes for impeachment, a Senate trial would then be scheduled to decide whether President Trump should be removed from office. While anything could happen between now and then, the odds strongly favor a prediction which indicates that less than 67 Senators will vote to convict the President of "treason, bribery, or high crimes and misdemeanors". This means that President Trump could then serve out his first term and could be potentially reelected for a second term following the November 2020 National elections.

The above two paragraphs state the obvious to me. What may be less obvious is the strong possibility that Trump's impeachment has deeply hurt him politically and that Trump now faces LONG ODDS and an uphill battle for his reelection. If National polls continue to show Trump's approval rating in the high 30's to low 40's, Trump may decide NOT to risk losing in the next election, but may instead resign from office with PRESIDENT PENCE'S pardon for himself and his family. I strongly believe that if Trump stays in the race and loses the Presidential election next November, he may very well be arrested on the day after he leaves office (in January 2021) to face multiple felony charges already in the queue (i.e. "Individual One" in the Cohen case). In my view, Trump desperately needs a pardon from ALL potential Federal criminal charges or potentially face the rest of his life in prison.

How does all this political speculation impact financial asset prices?

Unfortunately for stock investors, no matter how the next 12 months plays out, the results will be the same in the U.S. financial markets. As a direct result of Trump's early resignation from office or his eventual certain loss in the actual November 2020 election, the U.S. stock market will decline sharply which will then trigger the beginning of a significant economic recession which will then trigger a sharp rise in Treasury securities prices (the best safe haven). As a direct result of Trump's massive corporate income tax cut (from 35% to just 21%) ahead of the 2018 tax year, revenue to the U.S. Treasury from U.S. corporations was down 31% in 2018 as compared to the previous year. One of the first actions from the newly elected Democratic President early in 2021 will be to roll back Trump's tax cut and raise the corporate income tax rate to AT LEAST 30% (or higher). 

Timing of course is everything for traders and investors in the securities markets. Most major U.S. stock indexes appear impervious to any negative news right now. Not even the lack of progress on U.S./China trade negotiations hurts stock prices for very long. Third quarter corporate profits results looked unspectacular, which means that there must be other forces are at work keeping share prices near record levels. Ongoing corporate share buybacks are certainly a major factor supporting stocks right now, and discreet purchases of U.S. stocks by foreign central banks is probably also a key variable contributing to higher share prices (the Swiss National (central) Bank bought $10 billion worth of U.S. stocks in Q-3 and now owns $100 billion worth of U.S. stocks on its bloated balance sheet).

What will be the catalyst that triggers a downside reversal in U.S. share prices and then sustained selling in the inevitable bear market that follows?

As bad as the news is for Trump almost every day now with respect to impeachment hearings in the House of Representatives, I think there is even worse news to come. John Bolton hasn't testified yet, and I believe that HE WANTS TO TESTIFY and that his testimony will be devastating for Trump. U.S. stock market investors will finally cave into the reality that the Democrats will win back the office of the President and they will also win back a key majority in the Senate. Please keep in mind that if the Democrats win the Presidential election next November, all they need to do is win back three (3) Republican seats in the Senate to gain an effective majority (at 50 Democrats vs 50 Republicans; a Democratic Vice President would then break all ties on potential legislation). Of course, Democrats in the House of Representatives will certainly maintain their current majority following the November 2020 elections.

Bottom line: There is almost no scenario where the bull market in U.S. stock prices continues in 2020. The odds are probably near 100% that at least a 20% correction will unfold in 2020, and traders and investors should not be surprised to witness a 33% correction (or more)! In the early stage of this expected correction, there will be almost nowhere to hide. Only Treasury securities look safe to me right now. Gold, silver, and precious metals stock prices may actually decline during the early stages of this next bear market before finally representing excellent value ahead of the final washout of the overall stock market late next year.

Daily Chart Sell Signal Triggered Today in the Dow Jones Industrial Average

A daily chart sell signal was triggered today by my computer trading system in the Dow Jones Industrial Average.

Please see chart below:

Dow Jones Industrial Average (DIA) Daily Chart with Computer-generated Buy & Sell Signals