The Morning Line

Who could have predicted that a microchip shortage would threaten to seriously impair the global auto industry? And yet, here we are: assembly plants are unable to ship enough cars to meet demand, and buyers are facing six-month delays and steeply rising prices. This has pushed used-car prices beyond the reach of those who can't afford showroom new. We sense that the problem could be worse than the industry is letting on because "experts" are saying bottlenecks could persist until the end of 2023. Whom do they think they are kidding? The global economy is so screwed up right now that even a team of MIT eggheads using a supercomputer and petabytes of economic data couldn't predict where interest rates will be in 30 days, let alone in two years. To say the chip shortage might drag on for a couple more years is to all but concede that it's likely to persist indefinitely (sort of like the Fed telling us they might consider tightening "next year"). Rosary Bead Shortage The shortages that have cropped up so far have taught us that predicting what will be in short supply next takes imagination. Bicycles, surfboards, certain prescription drugs, ships and shipping containers, workers in many sectors, including construction, trucking, retail, restaurant, hotel and manufacturing -- all are in critically short supply at the moment. They are also economically tied, often in obscure ways, meaning that a shortage of pasta could eventually affect the supply and demand for accordions, Chianti and Rosary beads. It has also put consumers on high alert, ready to hoard household items a nanosecond after the mere rumor of a shortage hits the blogosphere.  It is predictable that there will be food scares this winter and that they will get the kind of attention that will make us

So much for seasonality. Bears were counting on the cyclical fury of autumn to rebuke revelers, but instead it is they who got rebuked, and badly. The stock market's strong rally during the traditionally difficult month of October has left many wondering what it will take to pop the bubble. It is almost invariably a combination of factors that virtually no one has precisely foreseen. But this time, predicting the onset of the bear's inevitable arrival would seem to require a bigger leap of imagination than in the past. For how does a bull market end when it is supported by seemingly unlimited quantities of money ginned up by the central bank? Deliberately tightening credit cannot be the answer, since the Fed understands that this would not only reverse the bull market precipitously, it would also doom pension funds, the Baby Boomers' retirement plans, artificially high real estate prices and a consumer economy already ravaged by the pandemic. The eventual outcome would be a global economy plunged into deepest depression.  This is coming anyway, but don't expect the Fed to set itself up as the obvious cause. And so the game goes on. The money from trees finds its way into the stock market in numerous ways, one of them being corporate buybacks. According to a recent article at Zerohedge, fully 40% of the market's rise can be attributed to this source. Some of the companies that borrow for buybacks are sitting on surplus cash of their own amounting to billions or even tens of billions of dollars. Why use real money, they have concluded, when they can borrow it at near-zero rates by issuing bonds to yield-starved investors?  And so they continue to plow borrowed money into their own shares, driving the shares into outer space without producing a

The performance of Apple shares has been a reliable harbinger of where greed and hubris would take this seemingly invincible bull market next. Apple is the biggest-cap stock of them all, worth $2.5 trillion, and it has increasingly become a sure thing for institutional investors since bottoming a generation ago below $5. With its broad base of fat-cat stakeholders, the stock has been an ideal market bellwether. More than any other stock, it is responsible for making portfolio managers look like geniuses, and for creating the deception that a U.S. pension system headed for certain disaster in the next bear market is in great shape. This week, however,  we will turn out attention to bitcoin, represented in the chart above by a CME vehicle that tracks best bids and offers for bitcoin in real time across many exchanges.  It could be argued that bitcoin is an even better bellwether than Apple, since it lucidly captures not only the methodical rigging of the investment casino by Wall Street hucksters, but the unmitigated craziness of the players.  They are being cheered on by big banks that surely know better, since bitcoin's supposed value is backed by...nothing.  Without having much actual skin in the game, the banks have been shamelessly talking their book since they conspired to lift bitcoin from pariah status back in March 2020. 'Wayne's World' Nerds This followed a shakeout that would have devastated mainly Wayne's World nerds who were early adopters and traders of bitcoin.  The virtual currency fell from above $10,000 to $3900 before the big boys began to aggressively tout encrypted money as a viable medium for financial transactions. This has yet to happen, in part because cryptocurrencies (although not blockchain technology, which holds enormous promise) offers few advantages over a credit card system that works just

Inflation fears are at a generational peak, pushing our stubbornly unfearful Fed chairman against a wall. He may yet prove right in saying inflation will be transitory, but for reasons that should comfort no one. In the meantime, the U.S. dollar seems resistant to the nervous chatter while Treasury bonds, although struggling for altitude, continue to hold their own. Both are near the middle of their respective trading ranges for the last five years, presumably waiting for more persuasive evidence that the inflation we've seen to date is about to go out of control. An obvious reason this has yet to occur is that wages have barely budged relative to the soaring cost of groceries and consumer goods. But how high can inflation go, one might ask, when the broad middle class can no longer afford stuff? Answer: Only so far. The wealthy will not have much of a counter-effect, either, since the trillions they've banked from the bull market will get plowed back into financial assets and real estate, not CPI items. Meanwhile, the theory that raising the minimum wage creates inflation has been tested and refuted by a pandemic-strained job market. What it does most clearly is destroy jobs. McDonald's may have rolled over on paying burger flippers $15 an hour -- what choice did they have? -- but they have minimized their pain by revamping the restaurants so that as few as three or four employees can run an outlet, including the drive-through. For customers, this means it now takes ten minutes to order a burger using a kiosk, compared to 90 seconds when there was someone behind the counter taking orders. Virtually all labor-intensive businesses continue to find new ways to operate with fewer employees, and many of them, including banks, are on the verge of

If I had to pick one chart that shows why the bull market is probably not over, it would be the one above. To be sure, the 157.26 peak recorded by Apple shares a month ago was a great place for an important top to have occurred; this chart shows why. But THE top? I have my doubts. For if this were so, it would rank as one of the most visually boring summits ever achieved. For permabears who have waited patiently for a fitting climax to the most most insane bull market of them all, it would be like finding a WaWa Market at the top of a Himalayan peak they'd almost died scaling. Setting the Hook A few forecasters had precisely predicted a potentially important top at or very near $157, including your editor. Some of us even profited from put butterfly spreads purchased a month earlier that more than quintupled in value with AAPL's 12% drop so far. But it could be pressing one's luck to hold out for more, since the downtrend seems to be struggling increasingly and made no progress at all last week. Perhaps the selloff will turn nasty in the week ahead. But if so, keep in mind that a plunge to the green line would actually be bullish, tripping a 'mechanical' buy signal based on Rick's Picks' proprietary Hidden Pivot Method.  It would also imply an eventual rally to as high as 187.93. This scenario is congruent with one I raised here last week -- i.e., that the stock market will rally to yet one more record high, setting the hook in bulls and short-covering bears alike. A steep plunge in the weeks ahead would make a reversal to new highs even more persuasive, and therefore more deadly. Whatever happens, AAPL is

The chart above shows how bull-market tops are made when nearly everyone is expecting one. That's the case now -- for so many good reasons that I won't bother with a checklist. Just take my word for it: the bull is dying. Most of the reasons the pundits are giving would have us believe the stock market is somehow connected to reality. I won't insult your intelligence with such claptrap, since you get enough of that on CNBC.  I'll simply mention my own good reason for thinking the Big One has begun: The so-far all-time high in QQQ, a speculative vehicle that tracks stocks favored by the chimps and lunatics who pretend to manage your money, hit an all-time high at 382.75 on September 9 that came within three pennies of a target I'd drum-rolled back in January. Stocks have gone steeply downhill since, giving my magic number a fighting chance to nail it. But perhaps not, or at least not yet. For if Mr. Market is going to set the hook as firmly as possible before taking no prisoners, it wouldn't hurt for him to push the broad averages, or at least the lunatic stocks, above the September 9 top that has begun to look so promising to permabears. After such a nasty tumble as occurred last week, new highs could set up a knockout punch much like the one that occurred in IBM. The peak that I've labeled "False top" occurred in mid-2009, and it came within relative inches of a major Hidden Pivot target I'd disseminated to subscribers months earlier. Imagine my elation when IBM dove sharply for eight weeks after getting within spitting distance of my magic number. Unfortunately, I was so busy patting myself on the back that I failed to notice the waxing vigor

[Recently I wrote here that the world's biggest financial institutions are in Evergrande muck up to their eyeballs, even if they claim that their exposure is small in relation to their respective assets. The trouble is, the supposed assets are as ethereal as Evergrande's grotesquely inflated real estate holdings. In the guest commentary below, Shawn Brown, a San Francisco friend from the hedge fund world, raises the possibility that behind-the-scenes maneuvering by the Fed is attempting to shore up the financial system ahead of potentially massive Evergrande shock-waves that have yet to be felt.  RA ] Who are the 80 Participating Counterparties in the daily $1 Tr+ Reverse Repurchase Facility, and why are almost half of the Primary Dealers foreign?  It appears Chinese real estate developer Evergrande is going to stiff offshore creditors in a proposed restructuring designed to zombify the property giant.  Is this a dry run for the Fed’s rapidly approaching hyper-hypothecated Treasuries moment? Friday, approximately 50 unidentified counterparties had their access to daily RRP doubled from $80 Billion to $160 billion.  According to  ADVRatings.com, only seven banks in the world have a market cap greater than $160 billion, and four of them are, dubiously, Chinese.  Former NY Fed, IMF and U.S. Department of the Treasury employee Zoltan Pozsar says the counterparties are “sterilizing reserves.”  If that’s true, the Fed is about to unleash a literal tsunami of liquidity (perhaps up to $5T) heading into fiscal year end to back-stop the Evergrande contagion and subsequent flight to safety. A Hypothecation Problem The Fed has a serious hypothecation problem, and it is also the reason they’re talking taper: everyone is quickly realizing Evergrande collateral is about to take a 50%+ haircut.  The Fed continues to throw shade with terms like "accommodative," "full employment," "low inflation," "climate change," Covid --

Bears had a rare chance to get short with impunity last week -- arguably the first such free-money opportunity since the bull market began more than 12 years ago. With the Evergrande saga unfolding in real time, shares appeared to be doing a Wile E. Coyote ahead of Friday's opening. Their gravity-defying behavior reflected one of those deft manipulations where DaBoyz greet whatever fragile bids show up in the early going with a feather-light touch. On Friday, playing it by the book, they scaled back their offers until the very last of the idiots from Mars doing the  buying were fully satisfied. The result was that stocks hovered aloft for just long enough that traders who had gotten things exactly right -- i.e., realized that Evergrande's failure could make the 1998 collapse of Long-Term Capital Management look like a furniture-store liquidation -- must have begun to doubt themselves. It was only after the opening bell that they came to their senses with the apparent realization that any selling done on Friday was all but certain to look fortuitous come Sunday evening.  Stocks began to fall, but not nearly as steeply as they are likely to fall in the days, weeks and months ahead. Indeed, I am publishing this commentary ahead of Sunday's resumption in trading to drive home my point, which is this: Evergrande's imminent implosion could turn out to be the biggest speculative collapse in history. It is going to take down many big players, causing a chain reaction that will definitively end the buying mania that has gripped shares since Covid-19's "bullish" failure to put civilization into eclipse. Up to Their Eyeballs For now, don't believe talking-heads blather about how Black Rock, Goldman Sachs et al. hold only relatively small stakes in Evergrande.  The truth is, when you

The weekend brought an autumnal breeze to much of the Eastern Seaboard, and with it raised hopes in some quarters that seasonality will trigger a long overdue avalanche in the stock market. Even a few bulls are hoping for this, since only a rip-snorting stampede out of shares can disperse the potentially explosive, hydrogen-saturated layers of hubris that have accumulated over Wall Street since stocks bolted into the blue 18 months ago. The astounding rally during a global pandemic has made the rich effortlessly richer while doing little to help the broad middle class. It has also undeservedly burnished the reputation of portfolio managers who have done little more than throw Other People's Money at a relative handful of stocks. They've been winning like crazy for more than a decade, so who could blame them for believing their amazing run of luck will continue forever? Of course that's the way things always feel at important tops, even if the Wall Street Journal and other cheer-leaders for investors' salacious fantasies will try their hardest to explain why this time it really is different. Love that Kamala! Most of us know better and can smell a top that is becoming increasingly pungent with each fresh instance of unsettling, if not to say appalling, news. The President's steepening mental decline, for one. The New York Times, the Washington Post and even the Wall Street Journal  will somehow find things to like about Kamala Harris when it's time to cheer her on, but there's no pretending she'll be any more effective than Biden.  And there's the delta variant, a contagion so robust that it could conceivably put the world into a second lockdown that will make the first seem like a global street festival. You could always argue that the market has become completely