Wednesday, August 14, 2019

It Already Happened

I began writing this piece on Saturday the 3rd of August. It was a "gut" feeling from the recent volatility that I saw in the market.  It happened in the first week.
Rich Santelli famously says, "Every boat in the bottom of the ocean had a chart room." I guess he is a fundamentalist? I, as you may know, am a hybrid. I use technical and fundamental.
The technical saw a bigger downturn coming. The fundamentals got worse. There is no trade deal with China and none on the horizon. There is scheduled talks for September, but talk is cheap. My readers know my feeling on the matter. End any dealings with China. They are thieves, thugs and liars. Let me make a disclaimer. It is not the Chinese people, but their government. Some foreign nations dislike the US. They only deal with the CIA who are the proverbial "ugly American."
There is a big world out there. We can trade with many other nations. The Fed cut interest rates due to the known of a perceived global slowdown to which could affect the US economy. The real unknown is the failure of fiat money. Currently, there are $13 trillion in bonds in the world. These bonds are saying that your money is worth less each day and to prove it, we will pay you less than your purchase price at the end-term of the bond. As a result, we have inverted yields. This is a huge, red flag. In addition, we have the usual suspects like Brexit, debt of Italy, Spain and Greece. So, my stomach turned, but I need one more conclusive signal other than the big down day.

What We Know and Don't Know

There are always factual things that occur behind closed doors. For example, the Fed realizes that the US national debt will be unserviceable with normalized interest rates. This is not stated as a reason for rate cuts, but it is in their thinking. So, I said to my analytical side, price action in the market is a truth. If the market has at least one down day of 250 or more points, this will confirm the market is ready to rollover. It will at minimum test the December lows.

We Had It!

It happened the first week of the month. Now, consider that the market is at high evaluations. Nothing is cheap except commodities, however gold is changing that perception. Dear Reader, you don't buy gold every day or maybe ever, but you do need gasoline. The price is down which reflects a high consumer confidence. This gives truth to the lie of the Fed who says that inflation has not reached their 2% threshold. Let me pause for a moment. I'm not switching gears. This is just a reminder that the Fed does not include food or housing in their formula. Keep that phony 2% in mind when your rental lease is up. You won't find one landlord anywhere in America who says, "Inflation is under 2%. Therefore, I will only raise your rent 1%." Ha!  

Other Voices

Any time that someone mentions an indicator that they use (bear) like the depressed price of commodities, another voice (bull) says with a matter-of-fact answer, it is a result of global slowing. It could change overnight. How about another conversation? The bear says the banks are lagging the market. The bull answers this is due to the low interest rate environment. Sebastian says, "The inverted yield never fails to call a problem." The bulls say that this indicator doesn't matter anymore.
You can go back-and-forth, but this is reality. In less than a week after the Fed cut interest rates, the world followed suit. The playbook of currency manipulation is front and center. It is led by China (Do I call a spade a spade?" See above) The Fed action has reverberated around the world and I expect more currency moves. This tit-for-tat, childish economic formula will reveal corporate debt in other nations that is hidden in foreign borrowing. This could effect derivatives and like Warren Buffet once called them, "Weapons of mass financial destruction." That was a time when he spoke the truth. You cannot trust him anymore. Anyway, this currency devaluations could trigger the derivative market and then as they say on Arthur Ave, "Forget about it!"