4) The Fed can achieve a “soft landing” (it can’t).
The Russell 2000 (IWM) which is more closely aligned with the economy and growth has figured this out. It’s only a matter of time before the S&P 500 “gets it.”
Meanwhile, regional banks are back at the lows.
Financials usually lead the broader market. Maybe this time is different?
Or maybe the next leg down is coming and coming soon.
If you’ve yet to take steps to prepare for what’s coming, we just published a new exclusive special report How to Invest During This Bear Market.
It details the #1 investment to own during the bear market as well as how to invest to potentially generate life changing wealth when it ends.
Tomorrow at 2PM EDT, the Fed will announce its policy decision for the month. And no matter what the Fed does, it’s in SERIOUS trouble.
Why?
If the Fed raises rates, this is only going to increase pressure on the banking system.
Depositors, both in the U.S. and Europe, are fleeing banks because A) the banks pay next to nothing in interest, whereas you can earn 3%-4% in a Money Market Fund or short-term T-Bills and B) depositors are now terrified that the banks at which they keep their money could go bust.
Consider that U.S. just experienced its 2nd and 3rd largest bank failures in history in the last two weeks. And over the weekend, the $1.4 trillion behemoth Credit Suisse had to be rescued by UBS and the Swiss Government.
Put simply, the issues that resulted in Silicon Valley Bank and Credit Suisse going bust / needing to be rescued will only worsen if the Fed decides to raise rates again tomorrow.
The alternative for the Fed isn’t much better.
Inflation is currently clocking in at 6%.
If the Fed doesn’t raise rates tomorrow, then inflation will rage.
I’m talking about a situation in which the U.S. becomes an emerging market, with inflation out of control, a currency collapse, and more.
Put simply, the Fed is screwed either way.
Yes, if the Fed doesn’t hike rates tomorrow there will be a relief rally in risk assets. But that relief will quickly turn to terror as U.S. Treasury yields explode higher.
Remember, the U.S. has over $31 TRILLION in debt and a Debt to GDP ratio of 120%. There are over $70 trillion debt securities in the financial system and another $500 TRILLION in derivatives that trade based on interest rates.
What’s happens to all that debt if the yield on the 10-Year U.S. Treasury spikes to 7% or even 9% if the Fed allows inflation to rage out of fear of worsening the bank crisis?
If you’ve yet to take steps to prepare for what’s coming, we just published a new exclusive special report How to Invest During This Bear Market.
It details the #1 investment to own during the bear market as well as how to invest to potentially generate life changing wealth when it ends.
The banking crisis has just claimed its first major victim.
Thus far in this banking crisis, the banks that were in trouble have been large, but not gigantic. The largest was Silicon Valley Bank which was the 15th largest bank in the U.S. at the time of its collapse with some $209 billion in assets.
Well, yesterday, UBS bought Credit Suisse for $3.3 billion. Credit Suisse is NOT a regional bank. It is a MAJOR bank with $1.4 TRILLION in assets. Indeed, the bank was literally larger than the country in which it was domiciled (Switzerland’s GDP is roughly $800 billion).
For a bank this size to fail is a MAJOR development. However, even more significant are the details of the UBS/Credit Suisse deal… namely that BOTH Credit Suisse bondholders and equity holders are getting wiped out (mostly).
Some $16 BILLION worth of Credit Suisse bonds are being written down to ZERO, while Credit Suisse shareholders will receive just one share of UBS stock for every 22.48 shares of Credit Suisse stock they owned.
Why is this a big deal?
Because no one in their right mind would want to own bonds or stock in a troubled bank after this deal.
Think of it this way… before this, banks were already facing two major problems:
1) They pay only 0.23% or so on deposits when depositors can earn 3%-4% in a Money Market Fund or Short-Term U.S. Treasuries. So money was fleeing banks for those higher yielding investments.
2) Depositors were terrified of bank failures. And so even MORE money was fleeing.
Now, banks face a new issue: trying to attract investors when there’s a very real possibility that both bondholder and stockholders would get wiped out if said bank failed.
The stock market bulls are trying to bid the markets this morning, as if this bailout/ deal is great news.
Was AIG getting bailed out great news?
What about Fannie and Freddie?
Nope.
Something VERY bad is brewing in the financial system. Indeed, my proprietary Crash Trigger is now on the first confirmed “Sell” signal since 2008.
This signal has only registered THREE times in the last 25 years: in 2000, 2008 and today.
If you’ve yet to take steps to prepare for what’s coming, we just published a new exclusive special report How to Invest During This Bear Market.
It details the #1 investment to own during the bear market as well as how to invest to potentially generate life changing wealth when it ends.
The Fed just gave out over $300 BILLION in single week.
See for yourself: the Fed’s balance sheet has erupted higher, erasing over HALF of its Quantitative Tightening (QT) efforts. Again, we are talking about $300+ BILLION in a single week.
Now, technically much of this ($164 billion to be exact) came in the form of loans to banks. The banks will have to pay this back, so it’s not quite the same as Quantitative Easing (QE). Regardless, the key point is that the Fed is NO LONGER shrinking its balance sheet… instead it is printing money. And not a little bit, but $300+ billion in a single week.
To put that into perspective, it’s the equivalent of more than TWO MONTHS’ worth the Fed’s emergency QE program that it ran in response to the pandemic. And again, the Fed did this in just FIVE DAYS.
What does this mean?
First and foremost, that something VERY BAD is going on behind the scenes in the U.S. banking system. But more importantly for us as investors, that the next round of bailouts/ easing/ reflating the financial system is here.
This won’t end well.
The Silicon Valley Bank bailout is the Bear Stearns moment for this bubble. Lehman is coming… as is AIG… and this entire mess won’t end until the stock market hits levels most cannot even imagine today… to the downside
Indeed, from a BIG PICTURE perspective my proprietary Crash Trigger is now on the first confirmed “Sell” signal since 2008.
This signal has only registered THREE times in the last 25 years: in 2000, 2008 and today.
If you’ve yet to take steps to prepare for what’s coming, we just published a new exclusive special report How to Invest During This Bear Market.
It details the #1 investment to own during the bear market as well as how to invest to potentially generate life changing wealth when it ends.
Ever since the Great Financial Crisis of 2008, the Fed has been primarily in an accommodative framework. For most of 2008-2023, interest rates were at ZERO or 0.25%. The below chart shows where rates were from 2007 until today. You’ll see that with the exception of 2017 to mid-2019, rates were effectively at ZERO for most of this time.
The Fed didn’t just keep rates at zero either. It printed money and used that money to buy assets/ debt securities to prop up the system anytime things started to break down.
We’re not talking about a little money printing either. Between 2007 and 2023, the Fed printed over $8 TRILLION.
This suppression of interest rates… combined with the money printing and easy access to credit had one primary beneficiary…
The Tech sector.
Tech, particularly high beta garbage Tech (apps, texting companies, social media, etc), NEEDs low interest rates to even exist because these companies require a TON of capital/ debt to reach profitability (assuming they even do that, which 95% DON’T).
And remember, we’re not talking about the Fed creating an artificial environment for a few months. They’ve been doing it for most of 15 years. And every time the system began to break down, the Fed would do even MORE extreme versions of these policies… which in turn made the environment even more favorable to the Tech industry.
How bad did this get?
Talk to anyone who wants to become an entrepreneur today and he or she will say they want to found a Tech company. NO ONE says they want to go into energy, or materials, or manufacturing. It’s all about apps, social media, search engines, etc.
Think of it this way, as of 2021…
The largest automaker in the stock market was a tech stock (Tesla).
The largest commerce company in the stock market was a tech stock (Amazon).
The largest consumer discretionary company in the stock market was a tech stock (Apple).
And so on…
The Tech sector was the largest sector by weighting in the S&P 500 by almost a factor of two. In fact, Tech was larger than both the 2nd and the 3rd heaviest weighted sectors COMBINED!
The below chart shows the performance of the Tech Sector relative to the broader market (S&P 500 since 1999). As you can see, Tech outperformed the broader market non-stop from 2008 onward. By the time 2022 rolled around, it was at levels that EXCEEDED those established by the Tech Bubble of 2000!
All of this is due to the Fed.
Most of the people who work in Tech are not geniuses, nor are they the best entrepreneurs on the planet. They were simply the beneficiaries of an artificial environment created by the Fed.
In the simplest of terms, Tech is to the bubble today, what Banks were to the bubble in 2007: the sector that benefited most, generated the largest profits, and consumed the largest percentage of talent/ aspirations.
That period is now OVER. And it’s not coming back.
So what does this mean for the markets?
Well, if the largest sector in the market is in a spectacular bubble the likes of which won’t return for at least another decade… what do you think?
The Silicon Valley Bank bailout is the Bear Stearns moment for this bubble. Lehman is coming… as is AIG… and this entire mess won’t end until the stock market hits levels most cannot even imagine today.
Indeed, from a BIG PICTURE perspective my proprietary Crash Trigger is now on the first confirmed “Sell” signal since 2008.
This signal has only registered THREE times in the last 25 years: in 2000, 2008 and today.
If you’ve yet to take steps to prepare for what’s coming, we just published a new exclusive special report How to Invest During This Bear Market.
It details the #1 investment to own during the bear market as well as how to invest to potentially generate life changing wealth when it ends.
A major bank just went under… contagion is dragging down other similar firms… the Fed is introducing emergency measures to bailout the system.
Is it 2008 all over again?
Yes and no.
“Yes” in the sense that the Fed created a massive bubble in risk assets. Also “yes” in the sense that banks made stupid decisions, violating central tenets of risk management by lending money to clients that could never pay it back (this time tech startups instead of high risk mortgage borrowers). And finally “yes” in the sense that the guilty players get bailed out by the tax-payer and the wealthy are made “whole” with preferential treatment due to their connections to DC.
However, that’s where the similarities end… because the issues the financial system faces today are far greater and systemic that the ones it faced in 2008.
The 2008 crisis was triggered by a crisis in housing… which became a banking crisis courtesy of Wall Street’s toxic derivatives trades,
This crisis (2023) is a crisis in Treasuries… which are the bedrock of our current financial system, the senior-most asset class in existences. And once again Wall Street has gone bananas with derivatives based on an asset class.
In 2008, the derivatives were “credit default swaps” and the market for them was roughly $50-$60 trillion in size.
Today, the derivatives are based on “interest rates/ bond yields” and the market for them is $500+ trillion. And as we just discovered with Silicon Valley Bank and Signature Bank… the banks weren’t particularly clever in how they managed their risks this time either.
Over the last year as the Fed raised interest rates from 0.25% to 4.75%, the Treasury market has collapsed. Remember, when bond yields RISE, bond prices FALL.
Other debt securities followed suit including mortgage-backed securities, corporate bonds and the like. Because remember, the yield on Treasuries represents the “risk free” rate of return against which all risk assets are priced. So when Treasuries fell, ALL other debt instruments had to be repriced accordingly.
As a result of this, U.S. banks are currently sitting on $640 BILLION in unrealized losses on their longer duration bond/debt portfolios. This is what precipitated the collapse of Silicon Valley Bank… and if you think that’s the last shoe to fall in this mess, I’ve got a bridge to sell you in Brooklyn.
So enjoy the bounce we are seeing in risk assets now. It won’t last… just as the market rally triggered by Bear Stearns’ shotgun wedding to JP Morgan in March 2008 didn’t last either.
Indeed, from a BIG PICTURE perspective my proprietary Crash Trigger is now on the first confirmed “Sell” signal since 2008.
This signal has only registered THREE times in the last 25 years: in 2000, 2008 and today.
If you’ve yet to take steps to prepare for what’s coming, we just published a new exclusive special report How to Invest During This Bear Market.
It details the #1 investment to own during the bear market as well as how to invest to potentially generate life changing wealth when it ends.
Stocks are bouncing this morning on announcements that the Feds will backstop ALL of the deposits at the now bankrupt Silicon Valley Financial Group (SIVB) AKA Silicon Valley bank.
This is a massive mistake. The banking system is in serious trouble and it is not clear that the $25 billion bailout the Feds crafted will be enough to deal with fallout.
One other bank (Signature) has already been closed, while most of the regional banks in California have seen their stocks halted.
What’s causing all of this?
Two things:
1) For the first time in 15 years, depositors can earn 4% or 5% in yield.
2) Banks are up to the eyeballs in garbage loans made during the pandemic.
Regarding #1, most banks are now paying out something like 0.05% or lower on deposits. Meanwhile, money market accounts and short-term T-bills are paying 4% of 5%.
As a result of this depositors are pulling money out of banks. And because the banks have to maintain leverage ratios based on capital requirements, the banks are being forced to sell assets (deleverage).
We are not talking about a small amount of money either. There is $5.5 trillion in deposits in small/ regional banks in the U.S.
This brings us to #2.
SIVB went bananas with its lending following the pandemic courtesy of all the bail-out/ stimulus money. SIVB was the bank for (h/t DiscloseTV):
1) Some 1,500 climate and energy-tech companies.
2) More than 60% of all community-based solar financing.
3) Countless “woke” programs that financed politically-tied entities/ startups.
Look, a bank can lend money to whoever it likes… but when you throw lending standards out the window and start loaning money based solely on political ideology (as opposed to whether or not the person/ business could ever pay you back) it’s a recipe for disaster.
By doing this, SIVB went from the 42nd largest bank to the 15th largest bank in the U.S. in the span of THREE YEARS. The chart below is not of a tech start-up or micro-cap… it’s that of a BANK. Yes, it went from $150 per share to $750 per share in less than two years.
Which brings us to today.
SIVB is NOT the only bank with these problems, just as Bear Stearns wasn’t the only bank with exposure to subprime mortgage loans in 2008. There is no easy way out of this mess.
Remember, there are over $5.5 TRILLION in deposits sitting in regional banks in the U.S. The Fed thinks that a $25 billion bailout fund will be enough to prop up the banks as a major percentage of this leaves to seek higher yields.
Good luck with that!
Oh… and by the way… our proprietary Bear Market Trigger… the one that predicted the Tech Crash as well as the Great Financial Crisis… is on a confirmed SELL signal for the first time since 2008.
If you’ve yet to take steps to prepare for what’s coming, we just published a new exclusive special report How to Invest During This Bear Market.
It details the #1 investment to own during the bear market as well as how to invest to potentially generate life changing wealth when it ends.
I warned and warned and then warned some more… that the market rally was NOT to be trusted.
The next leg down in this bear market has just begun. And Private Wealth Advisorysubscribers couldn’t be happier.
As I write this, our three CRASH trades designed to profit from a market meltdown are all EXPLODING HIGHER!
To find out what they are, you’d need to take out a trial subscription to Private Wealth Advisory (PWA).
A SIX (6) MONTH subscription to Private Wealth Advisory includes:
You’ll also get a copy of The Stock Market Crash Survival Guide which shows you how to prepare for the coming crash, including my proprietary Crash Trades that can pay out massive returns during crises.
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If you find it’s not what you’re looking for, just drop us a line and we’ll cancel your subscription. You won’t pay another cent!
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Frankly, this is a ridiculous amount of material to offer for just $4.99…
Heck, the book alone is worth $9.99, and you’re getting FREE shipping on it!
So technically, you’re getting the Stock Market Crash Survival Guide, Bear Market Trigger report (which has predicted every major bear market in the last 22 years), the weekly market updates, and the trade alerts FREE OF CHARGE.
Don’t miss out on this opportunity. Because it won’t be around much longer. And you’ll regret not taking advantage of it… especially as the market breaks down to new lows.
This is a big deal as historically high yield credit leads stocks.
Indeed, high yield credit bottomed in October 2022 (purple circle in the chart below) a full two weeks before stocks did (blue circle in the chart below).
Now high yield credit is telling us stocks are set to drop. According to high yield credit, the S&P 500 should already be at 3,900 a full 100 points lower.
Oh… and by the way… our proprietary Bear Market Trigger… the one that predicted the Tech Crash as well as the Great Financial Crisis… is on a confirmed SELL signal for the first time since 2008.
If you’ve yet to take steps to prepare for what’s coming, we just published a new exclusive special report How to Invest During This Bear Market.
It details the #1 investment to own during the bear market as well as how to invest to potentially generate life changing wealth when it ends.
It’s been heading towards one for years… but the massive rise in Treasury yields may finally be the match that lights the fuse.
I’ve written extensively about the rise in Treasury yields over the last few weeks. I’ve primarily done this from the perspective of yields rising due to inflation… which triggered the bear market in stocks.
However, it’s worth noting that this rise in yields has another far more systemic consequence. That is: the U.S. is now paying a WHOLE LOT more on its debt.
Consider the following…
On Monday, the U.S. issued $48 billion worth of six months T-Bills.
This time last year, based on where yields were, the U.S. would pay just ~$180 million in interest on these bonds.
Today, it’s going to end up paying ~$1.3 BILLION.
This is just one example. But this issue will apply to ALL new debts the U.S. issues going forward: higher rates will mean greater debt payments.
And bear in mind, the U.S. has over $31 trillion in debt outstanding… and is adding to this mountain via its $1+ TRILLION deficit this year.
So we’re talking about greater debt payments on a mountain of debt that will need to be rolled over or paid back sometime in the near future.
Meanwhile, investors are piling into stocks as if a new bull market has just begun. Despite the 20% drop last year, stocks continue to trade at a market cap to GDP of 150%+. To put this into perspective, it is roughly the same level that the markets hit relative to GDP at the PEAK OF THE TECH BUBBLE!
Oh… and by the way… our proprietary Bear Market Trigger… the one that predicted the Tech Crash as well as the Great Financial Crisis… is on a confirmed SELL signal for the first time since 2008.
If you’ve yet to take steps to prepare for what’s coming, we just published a new exclusive special report How to Invest During This Bear Market.
It details the #1 investment to own during the bear market as well as how to invest to potentially generate life changing wealth when it ends.
The stock market is primed for another major leg down.
Why?
Treasury yields are spiking again.
The yield on the 2-Year U.S. Treasury has exploded higher… blasting through its previous high of 4.72%. It is now closing in on 5%.
Bear in mind, it was just 1.25% this time last year.
Why does this matter?
The ENTIRE collapse in stocks thus far in this bear market has been due to Treasury yields spiking. Investors used to collect 0.25% “risk free” from these bonds. They can now get almost 5%.
As a result of this, no one is willing to pay 20-22 times forward earnings for growth from stocks. Instead they’re paying just 16-18 times forward earnings. And by the look of things it will soon be lower than that. Treasury yields keep rising… so stocks will keep falling.
This is the kind of environment in which crashes can happen. The Fed is rapidly losing credibility. And investors have been suckered into believing the “worst” is behind them: they poured $1.5 billion into stocks every day in January. And they did this at a time when my proprietary Crash Trigger is now on the first confirmed “Sell” signal since 2008.
This signal has only registered THREE times in the last 25 years: in 2000, 2008 and today.
If you’ve yet to take steps to prepare for what’s coming, we have published an exclusive special report How to Invest During This Bear Market.
It details the #1 investment to own during the bear market as well as how to invest to potentially generate life changing wealth.
This report is usually $250, but we’re giving away 100 copies for FREE to those who sign up for our free daily market commentary.
To pick up one of the remaining copies, use the link below…
The Fed has now made what would be its second “career ending” mistake if it operated in the real world.
The first such mistake concerned its ludicrous claim that inflation was “transitory” throughout 2021- 2022. Anyone who bothered doing any real research knew that argument was total nonsense… yet somehow the Fed with its 400 researchers and analysts failed to get it right.
In the real world, someone in a major position (Fed Chair or multiple Fed Presidents) would have been fired for this degree of incompetence. But we’re talking about the Fed here… which exists in some fantasy land in which you can blow up the financial system/ economy and still keep your job.
Which brings us to the Fed’s second “career ending” level mistake… believing that inflation was under control because some highly manipulated data suggested it was.
In December, the official inflation measure, the Consumer Price Index (CPI) recorded a month over month pace of -0.1%. Since October had been 04% and November had been 0.2%, the Fed took this to mean that “disinflation” had arrived. Fed Chair Powell used that word close to a dozen times during the Fed’s February press conference.
The only problem with this was that the CPI is a notoriously AWFUL measure of inflation… and is prone to multiple revisions. I knew that. Most analysts knew it. It is truly staggering that the Fed would NOT know it. And yet, that seems to be the case as the Fed fell for this nonsense and began slowing the speed of its rate hikes down to 0.25% in early 2023.
December’s CPI has since been revised to 0.1%. November and October’s were also revised higher. And January’s clocked in at 0.5% month over month. That’s inflation of 6% on an annualized basis.
Bonds have woken up to the fact the Fed has lost the plot. The yield on the 2-Year U.S. Treasury has erupted higher taking out its former highs with ease. The Fed will very likely be forced to INCREASE the pace of its rate hikes to 0.5% or even higher in the coming months.
This is the kind of environment in which crashes can happen. The Fed is rapidly losing credibility. And investors have been suckered into believing the “worst” is behind them: they poured $1.5 billion into stocks every day in January. And they did this at a time when my proprietary Crash Trigger is now on the first confirmed “Sell” signal since 2008.
This signal has only registered THREE times in the last 25 years: in 2000, 2008 and today.
If you’ve yet to take steps to prepare for what’s coming, we have published an exclusive special report How to Invest During This Bear Market.
It details the #1 investment to own during the bear market as well as how to invest to potentially generate life changing wealth.
This report is usually $250, but we’re giving away 100 copies for FREE to those who sign up for our free daily market commentary.
To pick up one of the remaining copies, use the link below…
I keep hearing from supposed gurus and commentators (not to mention the White House) that inflation is on the decline… but whenever I go to the grocery store or try to hire someone to fix something at my house or do just about anything other than pay for gas… the price is UP.
Who am I to believe? The establishment or my own eyes and wallet?
This is a MAJOR issue today in America… we are told all the time that something is a certain way… only to find out that it’s not like that at all. And the idea that inflation is going away is one MAJOR lie that hits close to home since it affects our incomes and our lives on a daily basis.
I’ve been one of the few people stating that inflation is not declining for months now. In fact, the only reason the data even rolled over at all was because energy prices fell because the Biden administration dumped 250 MILLION barrels of oil on the markets.
All that accomplished was about three months of declining energy prices. Because the bond market just called “BS” on the idea that inflation is under control.
To whit… the yield on the 2-Year U.S. Treasury… which the Fed tracks to determine where rates need to go… is SPIKING again and about to take out its former highs! This tells us pint blank that inflation is back and if anything the Fed will need to be MUCH MORE aggressive to stop it.
And despite this… and the economy rolling over… and inflation NOT being on the decline… investors poured $1.5 BILLION per day into stocks last month. In fact, from what I can tell, investors are MORE bullish today than they were a year ago! These folks BELIEVE the lies they are being told!
This is the kind of environment in which crashes can happen.
Indeed, my proprietary Crash Trigger is now on the first confirmed “Sell” signal since 2008.
This signal has only registered THREE times in the last 25 years: in 2000, 2008 and today. I’ve illustrated them in the chart below.
The clock is ticking on the markets today… just like it was in 2000 and 2008. Many investors will lose everything… but you don’t have to be one of them.
If you’ve yet to take steps to prepare for what’s coming, we have published an exclusive special report How to Invest During This Bear Market.
It details the #1 investment to own during the bear market as well as how to invest to potentially generate life changing wealth.
This report is usually $250, but we’re giving away 100 copies for FREE to those who sign up for our free daily market commentary.
To pick up one of the remaining copies, use the link below…
It’s catching everyone by surprise. And smart investors should read this article carefully to make sure they don’t miss out…
It’s a bull market in economic BS.
Before proceeding I want to stress that this is not a left vs right issue, nor is it Democrat vs Republican.
It’s reality vs. total fantasy.
The total fantasy is the notion that the economy is doing well right now. And one of the prime examples is the latest jobs numbers which claim the U.S. economy added 500,000+ jobs last month (January 2023).
The jobs report argues that the U.S. economy added 517,000 jobs in January. It arrived at this number courtesy of the household survey which argued that 894,000 jobs were added last month.
The Bureau of Labor Statistics (BLS) then admits in the very next column that 810,000 of these jobs were added via its “Population Control Effect” AKA an accounting gimmick, NOT reality.
Remove that gimmick and the U.S. added 84,000 jobs last month.
If you don’t believe me, here’s the table from the BLS stating this reality.
How is this possible? How can the BLS add so many fake jobs to its official numbers? Simple:
1) Only 44% of those given surveys actually answer them.
2) The Bureau of Labor Statistics applies numerous gimmicks to the data in an attempt to normalize things. Perhaps this is due to political pressure, or perhaps they are incompetent. Whatever the reason, the data is a work of fiction and has a tenuous connection to reality at best.
Some of the gimmicks the BLS applied to the January jobs data.
Its seasonal adjustments added over two million people to the non-farm payrolls number for the economy in both January 2022 and January 2023. Without these adjustments, only 152 million are working, as opposed to the 155 million the official number claimed.
Similarly, the household survey was adjusted to add over 1 million people to the “employed” category. So, in December of 2022, these one million people were NOT counted as employed. In January 2023 they were, NOT because they obtained jobs, but because the BLS’ model tweaked the number higher.
Things get even wackier from there.
Part-time employment supposedly jumped by 627,000 in January 2023… despite the clear historical trend that part employment should DROP after the holidays.
The BLS also claims that only 5,000 tech workers lost their jobs in January. The real number of tech workers who lost jobs is 85,000.
Bottomline: remove all of the gimmicks and tricks, and the real economy only added 84,000 jobs last month, which is the weakest job growth in TWO YEARS.
So how was the “official” number presented to the public so positive?
The BLS updated its methodology based on new estimates from the census. Doing this meant applying its model to a MUCH LARGER number, which generated MUCH LARGER job creation.
Don’t believe me? The BLS lays it all out in clear language here. Note the words “updated, estimates, and assumption” are featured heavily here.
So again, the economy is NOT booming. What’s booming is the amount of BS the government bean-counters apply to the economic data. I fully expect much of this to be revised down in the coming months.
But what’s truly frightening?
Investors are actually BUYING STOCKS based on this stuff!
If you’ve yet to take steps to prepare for what’s coming, we just published a new exclusive special report How to Invest During This Bear Market.
It details the #1 investment to own during the bear market as well as how to invest to potentially generate life changing wealth when it ends.
Stocks look to have formed a short-term peak last week.
Ever since this bear market began, the S&P 500 has followed certain dynamics. One of them is that it usually peaks around the same levels above its 50- and 200-day moving averages (DMAs).
Specifically, anytime the S&P 500 gets 5% above its 50-DMA and 3% above its 200-DMA, it usually tops out and rolls over. I’ve illustrated this dynamic with red horizontal lines in the chart below. And as you can see, this dynamic was at work during the recent stock market action as well: the S&P 500 rallied right to those levels and then rolled over.
So where do stocks go from here?
Well, the chart suggests they won’t stop the coming leg down until they are 8% below their 50-DMA and 10%-12% below their 200-DMA. That is where stocks have “bottomed” during the down legs of this bear market thus far.
I’ve illustrated those levels with red horizontal lines in the chart below.
Bear in mind, these kinds of moves can take weeks if not months to play out, so don’t expect a crash here and now. I’m simply sharing these charts with you to give you some idea of the underlying dynamics of this bear market, and where things are likely headed in the weeks to come.
If you’ve yet to take steps to prepare for what’s coming, we just published a new exclusive special report How to Invest During This Bear Market.
It details the #1 investment to own during the bear market as well as how to invest to potentially generate life changing wealth when it ends.
Friday’s data just obliterated any hope of the Fed stopping its rate hikes.
In case you missed it, on Friday the Institute for Supply Management (ISM) reported that its non-manufacturing PMI hit 55 in January 2023. This is a HUGE deal as the same data point was 49 in December 2022.
Anything below 50 is considered to indicate an economic contraction. So the fact we saw this sharp rebound indicates the economy is still going strong. And this, combined with the fact that the economy added over 500,000 jobs last month, tells us that the Fed has a LOT more room to raise rates going forward.
So if you were betting on a soft landing… or the Fed stopping its rate hikes and cutting rates later this year, you’re in for a rude surprise.
The $USD figured out what’s coming last week. But as usual, stocks are last to “get it.”
In simple terms, the markets are setting up to deal out a load of pain to stock market bulls in the coming weeks.
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Stocks are now in a strange time in which they do not perceive any major threats.
As a result of this, the bulls are buying stocks based on the usual “the Fed is about to pivot” nonsense. And they’re in for a world of pain.
Last year (2022) the big threat was inflation. Inflation, combined with the Fed tightening monetary policy, forced Treasury yields higher. With yields hitting 4% or higher in some cases, stocks were no longer as attractive as an investment class. So the stock market was repriced downwards from 20-22 times forward earnings to 16-18 times forward earnings.
However, as the above chart shows, since October 2022, Treasury yields have stabilized. With yields no longer rising, the threat of inflation has “disappeared” as far as stocks are concerned. And so investors have begun pouring back into the stock market based on the hope that the Fed will soon end its monetary tightening.
This is horribly misguided. Few things destroy an investor’s portfolio like buying stocks during a recession based on hope that the Fed will start easing monetary policy. And rest assured, the same bond market that told us inflation was out of control, is now telling us that a recession has arrived.
So what happens to stock bulls who buy stocks going into a recession? Well, the last two times, stocks did this:
In simple terms, the markets are setting up to deal out a load of pain to stock market bulls in the coming weeks.
But you don’t need to be one of them!
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The longer I’m in this business, the clearer it becomes that no one actually reads anymore. Everyone simply trumpets headlines, or retweets articles, without looking at the data.
The latest and most glaring example of this is the claim that “inflation has peaked.” Everywhere you look in the media (and on social media) people repeat this statement as if it is a fact.
It is not. Inflation has not peaked. And the data confirms this.
Almost ALL of the drop in inflation data has come from energy prices falling. And energy prices have fallen because the Biden administration dumped over 250 MILLION barrels of oil from the Strategic Petroleum Reserve (SPR).
To put this into perspective, it’s nearly 40% of the SPR. And the Biden admin dumped it in the span of less than two years. THAT is why energy prices dropped, which accounts for almost ALL of the drop in inflation data.
See for yourself. Outside of the drop in energy prices, the only significant drop in prices occurred in used car vehicles. Everything else is still RISING in price year over year.
I bring all of this up because now that the Biden admin is no longer dumping tens of millions of barrels of oil on the open market, energy prices are bottoming.
Oil has bottomed and is starting to turn up.
The situation is even uglier for gasoline.
So, unless President Biden wants to empty the SPR to zero, this “inflation has peaked” narrative is over. Inflation is coming back in a big way. And NO ONE is positioned for it.
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The data is finally beginning to register that a recession is at hand.
I’ve been forecasting that the U.S. economy was in recession back in November. Leading indicators and the bond market made this clear.
The yield curve has accurately predicted every recession since 1982. And it was SCREAMING that a recession was about to hit in the U.S. since mid-2022. As you can see in the chart below, the yield curve was more inverted than at any point in the last 40 years.
However, a big problem with economic forecasting is that most data sets are backwards looking. So often times you don’t get actual data telling you that a recession has arrived until the economy is already several months into the recession.
And the stock market pays attention to economic data, NOT leading indicators.
I mention all of this because the recession that I’ve seen unfolding since November is finally showing up in the economic data. Yesterday, the Commerce Department released a number of data series that were HIGHLY recessionary.
Retail Sales clocked in at -1.1% Month over Month. Similarly, Industrial Production came in at -0.7% Month Over Month while Manufacturing Production registered -1.3% Month Over Month.
Bear in mind, these are the data points for December. So, this is what was happening in the economy a month ago. And bear in mind, the Month Over Month numbers are a comparison between December and November. So, the downturn actually started more than seven weeks ago.
This is why stocks took it on the chin and bonds caught a bid yesterday. And judging by yesterday’s data, this process is just getting started.
And remember what happened to stocks during the last two major recessions in 2000 and 2007.
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As I’ve outlined before, Japan is the grandfather of monetary policy insanity. The Fed first introduced Zero Interest Rate Policy (ZIRP) and Quantitative Easing (QE) in 2008.
The central bank of Japan, the Bank of Japan or BoJ introduced them in 1999 and 2001, respectively. And since that time, it’s NEVER been able to normalize monetary policy. Indeed, the longest the BoJ has even managed to tighten monetary conditions in 20+ years is a mere 14 months.
Put simply, Japan has been dealing with extraordinary monetary policy for an entire generation: 25 years. Along the way, the BoJ has launched:
1) Negative interest rate policy (NIRP), through which it charges lenders to lend it money.
2) A single QE program equal to 25% of Japan’s GDP (in 2013).
3) Unlimited QE in the form of yield control, through which it prints money and buys Japanese Government Bonds any time said bonds’ yields begin to rise above a certain level.
We are in the process of watching #3 blow up today.
Initially, the BoJ, wanted 10-Year Japanese Government Bond yields to remain at 0%. However, once inflation arrived, the BoJ found itself printing so much money to defend that level, that it was forced to raise its yield target to 0.5%.
And that’s when all hell broke loose. The bond market is repeatedly testing the BoJ’s resolve, with yields rising above 0.5% time and again. To counter this, the BoJ is being forced to launch previously unscheduled QE programs on a near daily basis.
Friday and Monday alone, the BoJ spent $78 BILLION. And bond yields STILL rose above its desired level of 0.5%.
Something is about to break here. The BoJ just announced that it won’t be changing its policy despite the obvious signs that it is losing control of its bond market.
Put another way: we’re about to find out what happens when a bond market breaks a major central bank. Think of the 2023 crisis for Italy and Spain… only with the world’s THIRD largest economy and third most used currency.
As I keep stating, the Great Crisis… the one to which 2008 was a warm-up, has finally arrived. In 2008 entire banks went bust. In 2023, entire countries will do so.
If you’ve yet to take steps to prepare for what’s coming, we just published a new exclusive special report How to Invest During This Bear Market.
It details the #1 investment to own during the bear market as well as how to invest to potentially generate life changing wealth when it ends.Paragraph
