The Morning Line

For more than a year, I've recommended what my friend Doug Behnfield calls the 'barbell strategy' to secure one's nest egg against the deflationary hard times that lie ahead.  As formulated by Doug, a wealth-management advisor based in Boulder, the barbell portfolio is constructed with gold and bonds as offsets. Try to imagine the worst of times and you may have difficulty concocting a scenario in which T-Bonds and munis on one hand, and gold on the other, would fall together. However, it is relatively easy to imagine circumstances in which either or even both sides of the hedge would rise in times of extreme economic adversity. I had suggested holding off on the T-Bond portion of the hedge until interest rates peak. That day is coming, probably sooner than most 'experts' think, but we are not quite there yet. Yields on the Ten-Year Note ended last week at 2.71%, but my forecast calls for a top, or at least a lengthy leveling off, at exactly 3.24%. This is somewhat higher than the 3.02% rate I'd projected  for the 30-Year T-Bond, the difference lying in the way their respective rallies have unfolded. For purposes of optimizing the barbell hedge, however, I'd suggest using the 3.24% rate indicated in the chart above. No More Volckers A top at that level would be a far cry from the 20% peak in June 1981 that followed two years of tightening by Paul Volcker. As a result, inflation remained subdued for more than 30 years. The effects of tightening this time around could not conceivably turn out to be as benign as before because the debt sums affected are exponentially larger. To cite one particularly menacing example, Third World debts amounted to perhaps $1.5 trillion in the mid-1980s. This sum was deemed sufficient to

[Counting on the Fed to ride to the rescue when the bubble finally pops?  You had better have a Plan B, and for good measure a Plan C, since America could be in for something far worse than mere recession when the asset boom ends.  In the commentary below, my friend Charles Hugh-Smith spells out the reasons this is likely with greater clarity and concision than I have. I am grateful for his permission to reprint the essay, an installment of the 'Musings' emails that go out to subscribers every Saturday. Discover his extraordinary blog, books and deeply original reflections at OfTwoMinds.com by clicking here.   RA ] **** By Charles Hugh Smith The saying "demographics is destiny" encapsulates the reality than demographics--rising or falling trends of births and deaths--boost or constrain economies and societies regardless of other conditions. Demographics are long-term trends, but the trends can change relatively rapidly, with momentous future consequences. As this article below mentions, extrapolating the high birth rates and falling death rates of the 1960s led to predictions of global famine. As death rates declined and women's educational and economics prospects brightened, birth rates fell, a trend that now encompasses most of the world. As a result of the Green Revolution (hybrid seeds and hydrocarbon-based fertilizers), the Earth supports more than twice as many humans as were alive in the 1960s (3.5 billion then, 7.9 billion now). Now the problem is a shrinking working-age population that will be unable to support the financial and healthcare promises made to the retired generations. Birth rates in developed nations have fallen below replacement rates, which means populations are shrinking and populations are aging rapidly, i.e. the average age of the populace is rising.. One side effect discussed in this article is the decline of the cohort of young

Last week's commentary was skeptical that the short squeeze begun two weeks ago in the broad averages would prove to be just a bear rally.  Based on the latest technical evidence, it now seems likely that stocks are headed to new all-time highs. This is despite the fact that the world is going to hell in a handbasket, Biden's wrecking-ball presidency has a thousand days to go, China and Russia have joined forces to hobble the U.S. however they can, and there is even talk that America could be in for its first-ever food shortage. This comes on top of soaring prices for gas, groceries and nearly everything else, as well as a looming earnings recession. Throw in Fed tightening to the horizon line and you have quite a list of things about which Wall Street evidently cares little if at all. As always, we need look no further than Apple's chart to understand exactly where the market is headed. AAPL is a perfect proxy for institutional mindset, a one-decision stock since 2009 that has made erstwhile chimpanzees look like geniuses. DaBoyz have hung together on AAPL for 13 years, selling almost none of it from their portfolios, and buying every dip. A 4-for-1 stock split back in August 2020 allowed the rubes and riff-raff to join in the fun -- an opportunity to play AAPL stock and options with relatively small change. It became the biggest-cap stock in the world as a result and is likely to grow even fatter on perpetually spun news that, this time, it's teaming up with Porsche to have yet another vague but promotable go at the car business.   Sunny and Mild: Ugh!   The chart shows that buyers shredded their way past a 'midpoint Hidden Pivot' at 167.80 last week. This all

With the supposed bear rally about to enter its fifth week, I am reminded of Gideon Drew, "the thing that wouldn't die" in the 1958 horror movie of that name. Like Drew, the stock market has become a disembodied monster, able to command loyalty and teacherous obedience with just a creepy movement of the eye. The fictional Drew was beheaded for devil-worship by Sir Francis Drake, but the evil-thinking piece of him came back to life when the crate in which it was buried got dug up by some hapless D-list actors.  They are akin to today's investors, who for 13 years have been mesmerized by a stock-market bull that long ago decoupled from the corpus of reality. The bull will eventually send them over a cliff, as all bull markets inevitably do. But until that happens, the delusional herd will remain transfixed by the incantations of greedy Wall Street hucksters who can spin alluring dreams from even the scariest headlines. Cocksure, Sort of...  And scary they are -- so much so that the potentially world-shaking geopolitical disaster in Ukraine ranked only seventh on one well publicized list of Americans' biggest concerns. With such a formidable catalogue of troubles, it seemed more than a little plausible that the powerful selloff of stocks that began on January 4 was the start of a bear market. That is still what many, including some of my most astute guru colleagues, seem to believe. We were pretty cocksure about this when the S&P 500 dove 600 points, or 12%, in the first three weeks of the year. When a powerful bear rally intervened in late January/early February, most of us stood our ground; and then we doubled down on costless certitude when stocks began to plummet anew at the end of February. Now they

Considering the size of the crude-oil market and its geopolitical importance, the rally begun two years from $6.50/bbl amidst fears of a Covid-caused Depression ranks as one of the most spectacular and consequential in history. Consumers are coping at the moment with speculative excesses brought on by the curtailment of Russian petrofuels, and by disruptions, real or feared, in the global distribution network for energy. Pump prices have doubled since the pandemic began, piling crushing weight on a U.S. economy that was already close to buckling from steep increases in the cost of nearly everything. How much higher can prices go? The headlines suggest there is no relief in sight. But an end to the cost spiral is surely coming, since the parabolic rallies in many commodities, particularly oil, grains and metals, are too steep to sustain. When the wilding spree ends and prices fall as precipitously as they have risen, the result will be a deflationary bust that will send the global economy into deepest recession or even Depression.  Oil cannot but lead the way down, since its collapse will be exacerbated by the vast swath of the energy patch that has been hocked to financiers in order to propagate growth in derivatives markets that are much larger, even, than the oil sector.  I referred to this effect as a 'double whammy' in my last commentary, which was titled Inflation's Last Fling. Here's the Trade... So where might crude's rally reverse, popping an asset bubble that has been building for more more than three decades? The chart above makes a persuasive case for a bull-market top at $141. That would represent an 8% gain over this month's so-far peak at 130.50, and a 33% gain over the current $106.  The May contract shown may need to correct for a

Economists, particularly those who specialize in monetary theory, generally agree that inflation is an increase in the supply of dollars, and deflation a decrease. In practice, however, this theory is far too vague to be of any value for making predictions, since no one has a clue how much money is out there. There are so many fungible forms of it that even call options on Bolivian reverse floaters could probably be substituted for cash in a cleverly structured transaction. Further complicating the calculation of money in the system is that it can expand like heated gas if borrowers are confident that economic growth will remain strong. That is the underlying dynamic of money velocity, and when the level of confidence reaches a manic level of heedlessness, as is the case now, the money supply will expand commensurately. But what to make of the dollar chart above?  The headlines reflect growing anxiety over inflation, since prices for just about everything are rising, led by crude oil quotes caught in a parabola that has gone out of control. Under the circumstances, shouldn't the dollar be getting hammered?  There is an easy explanation for this seeming paradox: Although the dollar in plain fact is fundamentally worthless crap, all the other currencies are even worse crap. Further widening the gap is the dollar's singular usefulness in supporting a global casino with table action in derivatives markets alone exceeding $2 quadrillion. The dollar is the only currency remotely capable of handling such sums, and that's why it is indispensable. Its relative buoyancy in the global currency toilet would not be much of a concern but for the fact that the vast preponderance of borrowing is denominated in dollars. This means debts will be harder to repay as the dollar continues to rise. It also

Few expected Ukraine to put up such a fierce fight, least of all Vladimir Putin. Despite his overwhelming advantage of firepower and troops, he and the rest of the world might have known better, given the reputation Russian soldiers of all stripes earned in battle during the last century. Setting ethnic Russians against one another was bound to produce a bloody battle rather than an overnight victory such as Bush achieved shelling Baghdad. As a result, Putin has had to pull out all the stops with a veiled nuclear threat in order to show the world that he has the power to decide the war's outcome if and when chooses. However badly he wants to re-unite the republics under the flag of Mother Russia, fulfilling what he regards as the destiny of a once glorious and powerful USSR, Putin could never have been eager to have Russians spill each other's blood in his quest to rewrite history. It has cost him a reported 4,300 troops already, with corresponding losses on the other side, significant physical damage to Ukraine's physical infrastructure, and an enormous refugee crisis for the country’s civilian population. Nukes? Yeah, Sure... Putin reportedly has put nuclear forces on standby, but the possibility he will use them seems remote. Supposedly, the Russian leader is already considering talks with Ukrainian President Zelensky, even though casualties so far are just a small fraction of what they’d be if a nuclear device were to be used. Putin had seemed astute enough in the past to avoid making idle threats, especially grandiose ones, but in this instance he has shown himself to be no better at wielding a big stick than Biden. In these weekly commentaries, I usually attempt to predict how U.S. markets will react to the significant geopolitical events of the

[The markets will be closed on Monday for President's Day, but I am putting out fresh touts and commentary because DaBoyz are required to briefly let the beast out of its cage on Sunday evening. Up-to-the-minute updates from Rick's Picks will resume on the home page and in the trading rooms on Tuesday.  RA ] Technicians use charts to get a precise handle on trends and price reversals. However, even the unschooled eye can sometimes form a tradeable opinion by merely glancing at a chart. Does the one displayed above tell you anything that might be actionable? To my eye, and without resorting to any of the proprietary tricks that are possible with the Hidden Pivot Method, I see the Dow Industrials rolling over due to the presumptive weight of heavy supply. There are many reasons we could adduce for this; however, pondering 'reasons' would negate the value and usefulness of technical analysis, which shuns 'reasons' as mere noise in order to focus on how an infinitely complex conflation of 'reasons' are actually perceived and acted on by traders and investors. The chart above does not make it possible to infer with confidence that a full-blown bear market is about to unfold. But there is still the visually intuitive sense that: 1) a major rally from these levels is unlikely; and, 2) a large drop is needed to form a base before spectacular new highs could conceivably be achieved.  Again, using only the eyes rather than the brain, how far do you think the decline would have to go in order for a base to form?  There is no correct answer, but my subjective eye 'needs' a selloff into the void between the pink and red lines. Respectively, the levels are a 'secondary' Hidden Pivot at 31,036 and a Hidden

Thinking back over the last 30 years, it's hard to recall a single instance when traders ultimately lost money diving into stocks on 'bad' news. There was a hot mess of it on Friday, when shares plummeted to presumptive bargain levels on reports that Putin is about to invade Ukraine.  That's bad news indeed, although the talking heads seem as clueless as the rest of us about what it will ultimately mean.  The end of NATO? Possibly. But even then we are left to wonder how  NATO's demise would change the global balance of power. And is Biden's further mishandling of this crisis likely to doom his presidency?  There's no denying that he has ever looked stupider or more incompetent, and that's saying something. His first disastrous gaffe was to announce to the world that America's reaction to an invasion would depend on the scale of it. In other words, if Putin invades only a little bit, the U.S. would stand down militarily. Biden's handlers had already drummed up some very harsh economic sanctions a couple of weeks ago, but the jury is still out on whether the measures are so extreme that they will cause the collapse of the global banking system. We should have an answer in the fullness of time, but for now it couldn't hurt to get a vegetable garden started in your back yard as spring approaches. Realize that the myriad shortages we are experiencing these days could seem relatively mild if shock waves from Ukraine prove unexpectedly destructive to worldwide trade. Where Red and Blue Agree Biden could have placed the blame for whatever happens in Germany's lap by simply pointing out that the U.S. has no compelling reason to risk blood and treasure in Ukraine if Germany's leaders can't summon the gumption or