The current market rally from the recovery stimulus is now the longest in history. Of course, the latest obstacle to it is the early stages of a trade war. However, as I have pointed out in past pieces like China's excessive leverage problems or the US housing problems where the traditional starter home is being by-passed in the so-called housing recovery - the market keeps trudging along. It has a few down days over news or fears, but then, it finds its footing to move higher.
If you want to be technical about the progression to new highs, I understand. The Dow hit its high this year back in January. Nevertheless, the small cap and Nasdaq hit highs since that time. Overall, the market stays above 25,000 or near its high which can be called a consolidation.
Bigger Picture...
There is also the total picture and this one offers more truth. It is also way bigger than the stock market. It is the bond market. US bonds as demonstrated by the 10 - year note has been in a range. Upward pressure has been exerted by the Fed who say that they are now near neutral in a gradual return to the normalization of interest rates. The market, however refuses to believe in the Fed's ability or determination to raise rates back to reality(my choice of wording). This has kept downward pressure on long term rates.
In the time lapse since the financial crisis of 2008, the Fed gives BS about inflation, their tool box and using the media like the bully pulpit to control both the masses and Wall St. It has worked, but the world is changing. China is seeking control away from the Fed. To achieve their aim, they have forged alliances, offering gold for oil and now, spending a trillion or more to develop and control a new silk trading road. Europe has broken away from the US with their central banks. They are going beyond low - to negative rates. This is what happens with fiat money. Its true value gets exposed with time. It is actually worth less over time. The central banks of Europe are outwardly stealing from their citizens and in more ways than one.
The US government is working behind the scenes to keep the "petrol dollar." If all nations must use US dollars for oil, then the cornerstone for control by the Fed is in place. This is why the Chinese are offering gold for oil in trading. It is too early in the game to know if this could be a turning point. Yes, there are other factors, but these are the trends in place.
With that said, we return to the bond market for insight. At present, the rising dollar is killing emerging market nations. They borrowed money at lower rates and with a lower dollar. Now, rates are higher as well as the dollar. They have to buy dollars for oil and other commodities, but most of all, financing. Investors always seek yield and safety of that yield. It is why bond trading is controlled by Wall St. Emerging market nations are suffering a double whammy of higher rates and a higher dollar to conduct transactions. Anyone, saying that emerging markets is a buy in nothing more than a shill. They are hurting. China is trying to use that hurt to gather them into their fold. If you go(EM), you will be entering the cave of heroin and watched by a dragon. It is the siren call to your own death.
There is another problem in the bond market. Because the Fed is raising rates and Wall Street does not believe them, we are approaching what is called, inverted yield. The debate is reflected in this fashion. The inverted yield means that short term rates are higher than long term rates. It has not happened, but we are very, very close. Whenever this happens, a recession soon follows.
There are red flags that are pushing this condition in bonds. First, inflationary lies. This is something that I have talked about constantly. The Fed lies about inflation because it directly effects the second reason which is debt. Excessive debt by all in America. If rates were normal, the following three would have great difficulty in servicing their debt. The government is over $21 trillion and projected to add a trillion each year for the decade. Corporations used their capital for buybacks instead of paying down debt or research. They used it for mergers and acquisitions to which added to their liabilities. They have debt up to their eyeballs. Finally, the US citizen has run up credit card debt that recently passed one trillion and student loan debt that also passed one trillion. When they are repaying this debt on monthly installments, it will be higher and higher due to rising rates. It will become more difficult as time passes. It will probably first show up in delinquent car loans, but it will surface. Debt has to be repaid. A day of reckoning is approaching and it will be painful and ugly. These are the reasons why Wall St. does not believe the Fed will raise rates to normalcy.
Finally, consider this big lie...
Lending is based on the US 10 - year bond. Currently, the rate is around 2.99%. This is higher than Europe where in Germany it is only .31% for the same term. In Switzerland it is worse, .09%. These banks are stealing from their citizens. This sends investors to US bonds. In Japan, the rate for the same term is .08%. Crooks! It is like this throughout the world. You can get higher yields in Brazil at 11.62%, but their fiat money could become worthless. Risk must always be in the equation. So, investors buy US bonds, but the Fed is the central liar of all liars. Consider everything in pricing going back 10 years? If you buy a US 10 - year note, it now pays 2.99% and the 30 - year bond pays a paltry 3.32% or for the added 20 years, a buyer only receives .33% higher. Get Real! Simple logic says, if in ten years you get almost 3%, then 30 years should get 3x 3% higher. See how they steal? These people are corrupt! By this logic we are already at negative rates and logic tells me this is already an inverted yield. Danger ahead!
News Flash: 3- and 5-year yields fell to negative 1.4 basis points on Monday. Then, the 2- to 10-year soon followed. First time since 2007 that we have an inversion in notes. This is a major warning to the economy and the strongest indicator that a recession will soon appear.
