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Deflation Hinges on a Dollar that Refuses to Die

My astute friend Greg Hunter at USA Watchdog weighed in recently with such a despairing outlook for the dollar that it’s probably a good time to determine whether the charts support this view. Here’s the post from his site, which over the years has featured my own thoughts on deflation, the global economy and other topics: The Fed keeps telling us that inflation is going to be transitory, and things will fall in price and go back to normal soon. Nobody is buying this in the real world where people are watching their dollars fall in value and are paying more for just about everything. In simple terms, the dollar is tanking. Maybe this is why JP Morgan is the first big bank (with many to follow) that is putting high-net-worth clients into crypto currencies. Bo Polny says this is all part of a “Jubilee year which began in September of last year and ends in early September of this year.” Polny says, “Expect to see in the next four to five weeks a fall of the dollar, the world’s reserve currency. This could start as early as next week causing a run into tangible asset that include gold, silver and crypto currencies like Bitcoin. All hell is about to break loose on evil.” Sounds ominous, for sure. However, it flatly contradicts a forecast I’ve held to for decades – that deflation would ultimately wreck the global economy, driving the dollar into such scarcity that many, if not most, Americans would have to barter to survive. This may seem hard to believe at the moment, given the Fed’s unprecedented monetary blowout and the illusory prosperity it has created. Most of the digital cash has gone into investable assets, triggering a seemingly unlikely run-up in stocks during a year of Covid lockdowns. It has also created a real estate bubble even more extreme than the one that popped in 2008, nearly taking the global economy with it. This Isn’t the 1970s We should note that the current inflation is very different from the one of the 1970s. That was self-perpetuating to the extent wages and prices drove each other higher in a seemingly endless spiral. The current inflation is not self-perpetuating; rather, it is being fed by an increase in paper wealth that will reverse and crash in the next bear market. Nor are people desperate to trade dollars for physical assets as occurs in a hyperinflation; mainly, it has been Baby boomers spending a significant portion of their paper wealth on second homes in desirable locations away from urban centers. Still, one might ask: With the Fed and every other central bank inflating like there’s no tomorrow, how could deflation possibly result?  The answer lies in the inescapable fact that every penny of what we collectively owe must ultimately be repaid –if not by the borrower, then by the lender. This implies, for one, that when Biden and the Democrats “forgive” student loans amounting to $1.7 trillion, creditors will eat the entire loss. Twelve zeroes worth of receivables will be wiped from their books with the stroke of the President’s pen; shortly thereafter, yacht prices will begin to soften ever-so-slightly in West Palm Beach, and the market for $20+ million homes in the Hamptons will appear to totter, producing small tremors in Aspen, Scarsdale and Atherton. Now imagine this implosion multiplied a hundredfold. That’s what will happen when the inevitable bear market in stocks unfolds. It will suck far more digital dollars into a black hole of deflation than the Fed could conceivably monetize in an unrehearsed attempt to hold off a collapse. The deleveraging will not stop until it has reduced the $2 quadrillion financial derivatives market to an infinitely dense singularity. A thousand financiers working 24/7 and backed by the full faith and credit of the U.S. Government will not be able to pry loose even a dime of credit from this market for at least a decade. That’s how long it will take, at a minimum, for a wrecked middle class to push their credit scores back above 400. Dollar Short-Squeeze The collapse will end our misplaced faith in a bank clearing system that is ultimately as fragile as crystal, rendering ATMs and credit cards useless overnight. Money markets will seize up like a flash-frozen ocean as lenders refuse to roll overnight loans, instead demanding settlement in cash. That’s when we will discover that real cash-dollars are actually in short supply. In the absence of a functioning market for digital dollars, the resulting short-squeeze on real ones will be like the squeeze that pushed the shares of Gamestop and AMC into the stratosphere. The comparison is appropriate because, like debt issued by those two companies, the dollar ultimately is just a worthless I.O.U. For the time being, however, the dollar will remain under pressure despite assurances from Fed bag-man Jerome Powell that inflation has peaked. We should note, however, that the dollar has not exactly collapsed under the weight of QE derangement. To the contrary, and as the chart above makes clear, the greenback is down just 4% from the sweet spot of its pre-pandemic trading range. Moreover, a key, long-term support at 90 has survived two brutal shakedowns this year. Although the support could conceivably give way on renewed selling, nothing in the chart says this is likely, let alone that the dollar is in a condition of imminent collapse. Bear Sinks All Ships It is even arguable that the dollar index’s sideways move since early 2015 has been base-building for a moon shot to 120 or higher.  That would be extremely bad news for anyone who owes dollars, since they would be far more difficult to come by. Unfortunately, this problem will eventually enmesh us all, since it is not just a matter of mortgages and car loans, but also of our collective liabilities for private pensions, Social Security and Medicare. These are the deflationary whales that will bear down on us when the actuarial folly that has sustained them lies fully exposed by a stock-market bear. The whopping debts that we owe ourselves cannot be monetized without hyperinflating the programs themselves into quick oblivion. That’s one reason why the economic endgame is all but certain to feature deflation rather than hyperinflation. If there is a silver lining, it is that deflation will visit pain on borrowers that is more or less commensurate with their sins of excess. It would also leave intact the banking system and other institutional conduits of credit.  Hyperinflation, on the other hand, would destroy the bond markets that enable lending, throwing the economy into a state of barter indefinitely. Could things ever get that bad? Most surely. It would simply reflect the deleveraging of illusory financial wealth that has grown to more than ten times the size of global trade in actual goods and services.  Like the stock market, the world’s financial system is trading at an absurd multiple. Even more absurd is the notion that the massive debt-overhang can be stage-managed indefinitely with a sham “taper” crafted by the charlatans at the central bank.

Dollar’s Fans Needn’t Fear Biden SDRs

The latest attempt to move the global economy away from the dollar’s dominance involves a plan by Biden to issue $650 billion of Special Drawing Rights (SDRs) through the IMF. Ardent fans of the greenback needn’t worry, however, since this sum, as large as it seems, is just a drop in the bucket compared to a derivatives market that supplies more than $2 quadrillion to the world’s biggest financial players. The dollar is the only currency big enough to handle their action, which dwarfs global trade in actual goods and services of no more than $90 trillion. Under the circumstances, it’s unlikely the dollar will be replaced any time soon. The $650 billion supposedly will enhance global liquidity, as though more liquidity were needed in a world where financiers can borrow practically unlimited quantities of money for next to nothing.  China’s communist government is backing the SDR expansion, although for reasons that are doubtless different from Biden’s. One suspects that globalists have Biden’s ear and that he is unwittingly going along with them because, well, because he was witless to begin with. For its part, China undoubtedly thinks more funny-money loosed in the ether can only be a good thing, since the CCP’s main enterprise these days is helping poor countries go deeper into hock for Belt & Road projects. Pinto Beans for the Poor The SDR initiative is being touted as a way to make the world more “green” and “sustainable,” which is another way of saying that anyone who opposes it is trying to make life even more miserable for the poor. Arguably, they will in fact be better off, since even if $600 billion of Biden’s giveaway goes toward purchasing fleets of Bentleys and sumptuous vacation homes for Third World dictators, the $50 billion that eventually trickles down will still buy a lot of pinto beans, Monsanto seed, prescription drugs and sacks of cement. Meanwhile, Biden and his commie friends can gin up as many SDRs as they want and it’s not going to change things significantly. Think of it as a game of Monopoly in which a splinter group called Park Place LLP is formed to generate side-action with $1,000 worth of scrip. That’s only about 5% of what the official bank holds, but because it is not nearly as leverageable or fungible as “real” Monopoly dollars, the partners will eventually fritter away their “SDRs” paying hotel rents, utility bills and jail fines. Similarly, players who are dealt Biden SDRs will be constrained from multiplying them in the way a single real dollar magically becomes 50. To avoid having to write another commentary about why the dollar is here to stay, let me address an ungainly theory that frequently resurfaces  – i.e., that America’s energy-producing enemies will gang up on the greenback by demanding payment in other currencies. The simple fact is, the world is perfectly happy paying for something as valuable and useful as oil with a currency that is in almost infinite supply. If Russia, Iran or OPEC were to demand payment in harder money – gold bullion, for instance — sales would quickly drop to zero. End of argument.

The Monster Rally and Its Deceptions

Rick’s Picks subscribers ended the week transfixed by a powerful rally in the E-Mini S&Ps whose inevitable destination was 4362.25. Why inevitable? Mainly because a chat-room ace whose trading system has been getting the big swings exactly right lately had said so the day before. If he were a pistol sharpshooter, this trick would be akin to turning a Roosevelt dime into a pinky ring at fifty paces. For not only had he chiseled the 4362.25 target in stone, he also provided the time of day when a profitable short position he’d advised earlier was to be exited and reversed for a further gain of as much as $3000 per contract.  You’d have to have been there to believe all of this, but even allowing for a little hyperbole, the feat handily refutes ‘fundamentalists’ who think technical analysis is voodoo. Fools Well Equipped Surprising as it may seem, however, the ability to predict trend and target with seemingly uncanny precision does not guarantee easy profits.  On the contrary, the opposite sometimes obtains, since the violent countertrend swings that invariably punctuate rallies tend to shake the confidence of even the most fervent believers.  In technical terms, it is a matter of valleys exceeding peaks as a stock makes it way higher. Thus does each $3 leap beget a pullback of $2 or more, subjecting the trader to at least $2 of risk for each new $1 of profit gained at the next high. Since no prudent system for managing risk can survive this rollercoaster ride, it is mostly fools who get rich, at least for a while, staying with spectacular rallies. Experienced traders understand that corrections tend to be as vicious as trends are steep, a fact that impels them to take partial profits on the upswings.  One can always play fast and loose, of course, forsaking risk management for the thrill of riding a Brahma bull. But because so many cowboys are known to go broke, buy-and-hold bets are wildly popular only among those who make their living gambling with other people’s money. I mean to impugn portfolio managers with this statement, but one could argue they are not really gambling, since they all hang together and toss every dime with which they are collectively entrusted at the pass line. A Few Daredevils Returning to that 4362.25 target we were so sure of:  That being the case, why didn’t we simply wait for the August E-Mini S&P contract to get there and then short the bejeezus out of it with a tight stop-loss?  In fact, that is what many subscribers appear to have done, judging from the discussion in the chat room. As might be expected, however, in a room that draws great traders from around the world, there were some cowboys who’d boarded near the lows and stayed aboard for the entire wilding spree. Those of us who were not so bold rationalized it thus: Why subject ourselves to a harrowing rocket-ride when we can make a one-decision trade shorting 4362.25 and know in just a few tense minutes whether we’re going to be right or wrong? Ahh, but that is where Mr Market’s deceptions are most seductive, since the ‘easy’ trade against the trend all too often winds up being harder on one’s nerves, even, than climbing aboard El Diablo near the low. In this instance, although the actual intraday high at 4364.00 was well within the limit of even the tightest stop-loss, it occurred in the final moments of the session — of the week, actually, since it was a Friday. What to do next?  Since there’s always a chance that geopolitical mayhem or Armageddon could occur over the weekend, even a trading yahoo would think twice before betting big on red/black at the bell.  If you chose to sit on the sidelines, please know that the powerful uptrend is likely to continue for as long as bulls and bears alike are scared to death of it.

So Maybe Gold Actually Does Suck

I was premature when I gave the green light to gold bulls five weeks ago.  “If you’re a bullion investor,” I wrote at the time, “you can buy the stuff now without fear or qualm.” Had you taken this advice, you’d have gotten aboard just in time to get smashed in the head, since gold was about to have its worst week in six months. I made my recommendation seem even more foolish by running it under the headline Gold Really Sucks. Here’s Why.  This was just a ploy to grab the attention of gold bulls, since the commentary itself, as readers soon realized, was quite bullish. So what changed my mind?  I’d like to say that fresh evidence on the charts swayed me. In fact, I actually ignored a flashing-yellow signal early in March, when GDX, the gold miners ETF, breached a key low at 31.22 from nine months earlier. This is shown in the chart, and it created a glow-in-the-dark ‘impulse leg’ that was unmistakably bearish. Unfortunately, my focus was elsewhere, mainly on a few subjective factors that were bound to mislead anyone looking for a long-elusive ray of sunshine in precious metals. For one, I noted, bitcoin was finally getting its comeuppance, presumably freeing up speculative energy for bullion. And for two, there had been no vicious takedowns in gold recently, ostensibly because the bad guys finally realized it was time for gold to start discounting the rising crescendo of inflation fears.  I was wrong on both counts, for gold and silver were about to get hit with their steepest two-day sell-off since November. Further selling mercifully stalled, but the jury is still out on whether another wave is coming. Rallies Died It took an email from a correspondent to open my eyes to the bearish reality of price action since last August.  The email featured the analysis of someone called ‘Plunger’ who posts on the excellent Rambus Chartology site. Plunger took great pains to separate himself from those who still cling to the notion that bullion’s slide since last summer, punctuated by exciting rallies that died, is merely corrective. It is bear-market action, clear and simple, he wrote, and I find myself agreeing. The good news is that, whether you call it a correction or a cyclical bear, it is occurring in the context of a much bigger, secular bull market that still has significantly higher to run. Here’s a chart with my target at 2285.  I should also mention that if Comex Gold were to fall a further 24% to the green line – bad enough, probably, to satisfy Plunger — it would generate a ‘back-up-the-truck’ buy signal, based on the rules of my Hidden Pivot System. How Much Lower So how much lower will gold and silver need to fall before a durable bottom is possible?  Plunger thinks we are nearing the end of bullion’s ‘disappointment’ phase and that a capitulation finale in GDX would be signaled by a drop below the March 2021 low, 30.72. I agree. Thereupon, my worst case would be 27.17, which is not too far from Plunger’s. And my best case?  I could see as little damage as 31.76, or perhaps 29.13.  Plunger evidently does not expect gold bulls to get off that easily, but his commentary seemed open-minded to the possibility — to the possibility, even, that he is entirely wrong, and that gold is about to embark on a huge bull run. That wouldn’t shock me, even if I’ve just acknowledged that the breakout I touted a month ago was more likely just a false start, one of many for gold.

Baseball a Cure for Covid Fear-Mongering

Fear of the much-ballyhooed Delta variant was nowhere in evidence recently at North Carolina’s McCormick Field, home of a minor-league baseball team called the Asheville Tourists. The team, a high Single-A farm club operated by the Houston Astros, filled McCormick’s 4000 seats to near-capacity, and there was nary a mask in sight. It was great baseball, which turns out to be the perfect antidote for non-stop Covid doomsday-porn emanating from Fauci’s office and amplified to a deafening pitch by his ignorant, Great Reset-obsessed lackeys in the news media. As fans of the game might expect, it featured entertaining highs and lows just like the majors. A towering pop-up above second base attracted enough fielders to catch a swarm of fireflies; instead, they caught nothing when the ball dropped between them. But a runner on first base looked even worse when he failed to keep running past second base even though there were two outs.  The defense redeemed itself with a spectacular diving catch in the ninth inning by the Tourists’ center fielder — a risky effort, considering there were no men on base and his team had a four-run lead.  Afterward, a terrific fireworks display sponsored by chain-grocer Ingles, rocked the neighborhood. ‘Delta’ Thrives on Ignorance For the good of America, Fauci and his Goebbelsian PR crew should take in a few baseball games this summer. Otherwise, they’ll continue to work overtime trying to convince us that ‘Delta’ is the most menacing development in all of history. But when was a virus variant ever more deadly than the original strain? If this were so, the variant, even if it tends to spread more easily, would quickly extinguish itself by killing off the host. Under the circumstances, how dangerous could it actually be, given that more than 99% of those who contracted the original strain recovered? Realize that in India, where ‘Delta’ was first detected, Covid cases declined 85% from the peak several weeks ago even as the variant became the dominant strain. And note as well that fewer than one person in 25 has been vaccinated in India. Not once have I heard the words ‘Delta variant’ during a so-far seven-week road trip that has taken me from South Florida to New England and most of the way back. Some of my friends speak of friends of friends who got sick or even died, and of how glad they are to be vaccinated. But if they feel threatened by the supposed killer variant, they are not wearing masks to guard against it. Nor are they telling their adult kids to get the jab despite the fact that Fauci, his vaccine Storm Troopers and the press are relentlessly pushing shots for everyone but infants.

Is Repo Madness Predicting a Crack-Up?

[The following was written by a San Francisco friend from the hedge fund world, Shawn Brown. It buttresses the suspicion that while there seems to be plenty of credit money available for speculation, the collateral behind it is getting thinner and shakier by the week.  The Fed, with $8 trillion of Treasury paper and other top-shelf collateral on its balance sheet, has monopolized the supply, leaving lending banks to scramble for collateral of their own that hasn’t already been hocked twentyfold. As a result, central bank interventions are becoming more frequent, more complex and bigger, to the point where even the experts are having trouble determining whether the banking system is headed for a crack-up far larger than the one that took down Archegos a few months ago.  RA] Why is the Reverse Repo Facility breaking records daily and the Federal Reserve returning hundreds of billions in foreign currency swaps weekly?  These two concerning but mostly overlooked items seem to coincide with Bill Hwang’s disaster at Archegos Hedge Fund. We still have very little clarity on exactly what happened with conflicting reports on the actual fallout. Whether the fund was naked short derivatives or concentrated long media companies, these positions resulted in tens of billions in losses to a number of Too Big To Fail banks. Whatever occurred, shock waves are still rumbling throughout the intertwined global financial system. Who Are Those Guys? The current explosion of usage from the Fed’s Reverse Repo facility began on March 26 — the same day Archegos ceased operations — with 12 Participating Counterparties exchanging $11.45 billion for Treasury securities. We aren’t allowed to know who they were because it might cause a run on the institutions, or so the story goes.  Fast forward to this past Friday morning and 61 Counterparties wanted to swap their idle cash for nearly three-quarters of a trillion dollars, or $747 billion, of T-Bills, -Notes and -Bonds.  Is this is why we are hearing the Temporary Open Market Operation might become permanent? Another curious happening at the Fed also began in earnest around the same time.  The FRB H.4.1 release for the week of April 1 noted Central Bank Liquidity Swaps returned over $325 Billion to Foreign Central Banks, which continues through this week’s release of another $350B.  Again, no information concerning which foreign central banks are receiving these mountains of fiat or why the FRB is returning the currency.  Prior to the Archegos collapse, H.4.1 releases have required infrequent and minuscule usage of foreign liquidity swaps. Blow-Ups ‘Concealed’? A Reuters dispatch dated April 2 appears to agree with our sentiment, “The meltdown of Archegos Capital Management LP, a New York investment fund run by former Tiger Asia manager Bill Hwang, has sent shock waves across Wall Street and drawn regulatory scrutiny in three continents.”  Is this type of risk-taking isolated, or are more blow-ups being concealed through Fed data releases?  As Former Fed Chairman Alan Greenspan famously stated, “I know you think you understand what you thought I said, but I’m not sure you realize that what you heard is not what I meant.” We live in a time when everyone seems to forget what happened yesterday, let alone “way back” in late March of 2021. Perhaps it’s time to stop providing custody and execution services to guys like Hwang, who was fined $44 million in 2012 for insider trading?  Who and why was this convicted scam artist allowed market access to trade through his renamed “Family Office”? Maybe the Prime Brokers who traded with Archegos were confident they’re also now TBTF. It appears the Fed will backstop everything from MBS to Corporate Bonds, why not total return swaps, too?  Paging the Ghost of Bobby Thomson to a white courtesy phone.

State Budgets Shout ‘TOGA!!!!’

Flush with stimulus, the states are in a spending mood that can be summed up in a single word:  TOGA!!!!!  Take Oklahoma. Their latest budget reflects an annual increase of nearly 18%, according to a report from the Associated Press. It includes bigger earmarks for education, corporate and personal tax cuts, credits for school choice and even for film producers.  In Florida, outlays will rise by about 11% to a record $101.5 billion.  The extra spending will provide “bonuses for teachers, police and firefighters, and new construction projects at schools and colleges.”  Believing they will still have money to spare, Florida lawmakers have also expanded sales-tax breaks for school and hurricane supplies and created a tax-free week for purchasers of museum and concert tickets and recreational gear for camping, fishing and surfing.  In New York, a $212 billion budget is nearly 10% higher than last year’s, most of it coming from Federal relief. The Cuomo government is planning to boost aid to schools by $1.4 billion, and spend another $1.3 billion to overhaul Penn Station, among other projects. What Could Possibly Go Wrong? Federal aid amounts to fully 15% of what the states took in during fiscal year 2019, according to Moody’s. Since they have until 2024 to spend the most recently disbursed Covid money, some states are waiting until later in the year to budget their windfalls. No question, increased spending by the states will have a bullish impact on the U.S. economy for the next several years. Even so, some are wondering what will happen when the money runs out. “I’m afraid that we are spending money and making commitments that we will not be able to sustain once that one-time federal money goes away,” said Sen. Bob Rankin, a Republican who sits on Colorado’s joint budget committee. Perhaps Rankin shouldn’t worry so much, since there is no law that says the federal money must “go away”.  This seems particularly true now, since the idea of free lunch is more popular than ever, gaining political support because it seems to be working so well. As how could it not? Besides financing a blowout in state spending, fresh digital dollars from Uncle Sam have caused stocks and residential real estate to skyrocket, consumer spending to overwhelm lockdown lethargy, and the economy to recover as though a world war just ended.  So what if grocery prices have shot up and no one wants to work!  Such concerns are a small price to pay for stimulus that has made the middle class wealthier than ever, at least on paper.  And never mind that if every dime of stimulus were banked against the states’ unfunded pension liabilities, the liabilities would swallow the entire sum without leaving an economic trace. Keynesian Quackery The biggest threat we face is that the short-lived, seeming successes of stimulus will make everyone a believer in Keynesian quackery. The British economist John Maynard Keynes hoodwinked many politicians and colleagues into believing the economy would benefit if the federal government paid workers merely to dig holes and refill them. This absurdity, never out of fashion on the left, ignores the common-sense fact that investment capital would take the hit and that its egregious misallocation would make us all poorer in the long run, not richer. Multiply the hole-digging brigades ten-thousandfold and you arrive at our current spending spree, a Covidpalooza of misallocation.  And who will pay for it?  Although the question has surfaced in recent debates on Capitol Hill, that doesn’t mean anyone takes it seriously enough to confront the answer. But make no mistake, the money-from-trees that has encouraged such extravagance by the states is just borrowing in disguise, and that means it will have to be repaid.  However, since the sums involved have grown far too large to repay with higher taxes, there are just two alternatives: 1) hyperinflation, which would screw lenders and reward borrowers while destroying all institutional conduits of borrowing and credit for at least a generation; or 2) deflation, which would leave the financial system intact while visiting pain on borrowers more or less in proportion to what they owe and what can be squeezed out of them. There are no other possible outcomes, even if politicians continue to pretend that trillions of free lunches can be served up indefinitely without burdening anyone but “the rich”.

Enjoy Inflation While It Lasts

If we’d known the pandemic would trigger the most reckless monetary blowout in history, could anyone have imagined that the U.S. dollar a year later would have fallen by just 14%? That doesn’t even qualify as a bear market, just a middling correction of a powerful bull run begun in 2008, a year ahead of the historic rally in stocks.  The Dollar Index was trading around 70 at the time, about to embark on a nine-year climb to 104 early in 2017.  It subsequently swooned as low as 88 early in 2018 but hasn’t traded any lower since; it’s currently at 90.12. That’s with the Fed showering trillions of dollars in helicopter money on America, a feat that achieved a dubious milestone recently when central bank purchases of Treasury debt exceeded purchases by foreigners. Biden for his part has been ramping up outlandish spending proposals, promoting the timeless Democratic canard that “the rich” will pay for it all. The proposals are likely to grow even more outlandish, since Biden fears that a Republican Congressional victory in 2022 could close the window of opportunity for a fiscal expansion dwarfing FDR’s New Deal. Stimulus ‘a Drop in the Bucket’ So why do I continue to insist nonetheless that we are headed into a catastrophic deflation? The short answer is that even tens of trillions of stimulus dollars is just a drop in the bucket compared to a deflationary juggernaut poised to suck inflation into a black hole. When the bubble finally pops, here’s a list of things that will deflate like a tire with a hole in it before the central bank has a chance to even attempt a resuscitation:  * A hyperleveraged derivatives market valued notionally at $2 quadrillion  * The public-pension systems of two-dozen states  * Residential and commercial real estate currently valued at around $55 trillion  * Money market instruments worth $3.8 trillion that lubricate the financial system short-term Can you see the problem?  Not that anyone doubts the Fed’s determination to keep the system liquid at all costs.  It’s just that the central bank’s statutory and logistical ability to do so will be outmatched by the precipitous shrinkage that some black swan is destined to cause. A Powerless Fed In the meantime, it is a given that the dollar will continue to sink, pushing the price of everything higher. But don’t confuse this with 1970s-style inflation, when wages and prices interacted to produce a steady rise in both over a period of years. In contrast, today’s inflation is feeding off an asset bubble that could collapse overnight. When this happens we’ll discover that although the Fed excels at Ponzi schemes to fatten investable assets, it is powerless to rescue agencies that spew real cash-dollars continuously. The public pension system, for example. Imagine what will occur when the Treasury starts sending out monthly checks totaling $30 billion or so to retired Illinois workers. Within days, two dozen more states whose pension funds are nearly as bankrupt will line up for their bailouts. Rescuing all of them would be tantamount to hyperinflation — a self-defeating exercise, since, by the fourth or fifth month, a $2,500 check would not even buy groceries.  And well before then, of course, private-pension managers would march on Washington seeking handouts for their clients. Together, these problems and sundry others will ultimately overwhelm whatever short-lived, nuisance-inflation lies just ahead.  But hyperinflation? That would require the mass epiphany that bogus dollars are about to be printed in such quantities as to render them absolutely worthless. This seems highly unlikely, given that Biden’s rampant stimulus proposals have stirred opposition, including from a few Democrats whose votes would be needed to enact his plans.  There is also the question of where people would stash their money in lieu of holding dollars perceived as sinking fast toward worthlessness. The stock market and real estate are obvious answers, but they are already in bubbles doomed to collapse. Any way you slice it, deleveraging is how this bubble will end.  “Inflate-or-die” policies have just about run their course and will require only a shove from a bear market to go over the cliff. But if you believe that bear markets no longer happen, then by all means, bet the ranch on inflation.

Gold Really Sucks. Here’s Why…

Sucks? Yeah, sure. Maybe in the eyes of crypto fanatics and the quacks who re-invent monetary policy every month. In actuality, few things in the material world suck less than gold. Sorry to resort to headline flim-flammery to get your attention, but it was time to upgrade our enthusiastic endorsement of gold — and silver! — to an outright declaration of love. If you’re a bullion investor, this means we are confident you can buy the stuff now without fear or qualm. And if your safe deposit box is already filled to overflowing with ingots and precious-metal coins purchased when gold was $300 an ounce, it’s time to rent more space. You can even tell kin and friends that bullion is about to embark on a long, profitable ascent without having to worry about their getting burned. More likely is that they will thank you profusely a year from now, especially if the money they’ve plowed into metals was drawn from tech stocks and other appallingly overpriced shares being distributed to greater fools these days by Wall Street’s mountebanks. Bullion’s Correction Is Over Regularly readers of Rick’s Picks will know that we quickened our bullion drumbeat earlier this month after Comex futures exceeded a small but technically significant price peak on the daily chart just above $1800. Nothing as promising as this had happened since December, and it suggested that the painful correction begun from around $2060 last August was close to an end. There were more bullish signs to follow. For one, minor ABCD rallies began to exceed their ‘D’ targets, even as corrections fell shy of them. Under the rules of our proprietary Hidden Pivot System, this was unmistakable evidence that the dominant trend had shifted from bearish to bullish. Perhaps even more noticeable was the absence over the last couple of months of vicious takedowns. Gratuitous swoons of $80 or more had become an increasingly frustrating feature of a stagnating bull market that was taking its sweet old time preparing for an assault on last summer’s record highs. At least one other factor seemed to have been working against bullion: crypto craziness. Much of the speculative capital that ordinarily would have flowed into gold and silver because of inflation fears was instead flowing into bitcoin. Some highly visible players even asserted that bitcoin was the better hedge against inflation. It was only a matter of time before they smartened up and began to reverse the investment flows. The shift accelerated recently went Elon Musk criticized the ‘mining’ of bitcoin as environmentally wasteful, and China announced a crackdown on bitcoin speculators. Silver Supply Tightens  And then came this epiphany: A friend of ours from the hedge fund world who has been accumulating silver aggressively since December said it is getting harder to buy. Last week, for instance, he ordered a hundred 1000 oz. bars worth about $2.9 million from Monex.  Usually it takes no more than four business days for the ingots to arrive, but this time Monex told him there would be a three-week wait, even if he reduced the size of his order to as few as 20 bars. Monex also recently discontinued a program that allowed customers to trade against warehoused silver with 25% margins. If physical silver is in critically short supply, the evil wizards who manipulate its price would prefer that you not know the extent of it, at least not yet. Late Sunday night, July Silver was up a measly 25 cents, an eerily becalmed dinghy in the path of a gathering tsunami. Gold looked just as sleepy, with a gain of just $5 in thin trading. Don’t be fooled by quiet markets.  According to my hedge-fund friend, some of the biggest funds have been accumulating silver, presumably before they allow all hell to break loose in the form of a short squeeze. With evidence mounting that demand from such sources is close to overwhelming supply, it’s hard to recall a moment when owning bullion as an investment was more attractive than now. _______ UPDATE (June 3, 10:21 a.m. ET): Ha-ha. Just when I mention “no takedowns,” DaSleazeballs hammer down gold by $45. The proximal cause of this fake selloff, abetted by evidently still abundant, fearful clowns, was allegedly ‘bullish’ unemployment data. Stay the course!

Why Tax-Free Munis Are Still a Buy

Investors who feared muni-bond defaults when the pandemic first hit created unusual opportunity for those willing to buck the tide. One of the winners was Doug Behnfield, a Boulder-based financial adviser at Morgan Stanley whose ideas have been featured here many times over the years. Doug is not only one of the savviest investors I know, he is one of the savviest guys. Now, he is quite bullish on municipal bonds for reasons spelled out in a report that went out to clients in April.  He also thinks Fed Chairman Jerome Powell’s confidence that the inflationary effects of stimulus and fiscal spending will be “transitory” is well founded and that this has already been discounted by stocks and bonds. Doug and his clients enjoyed an exceptional year in munis because he started buying them when others were dumping them. Prices subsequently recovered and then some, yielding excellent gains for anyone who’d faded the panic.  Doug is a canny contrarian who shares your editor’s view that deflation poses a greater threat to the U.S. economy than inflation. More immediately, he expects pent-up demand to produce a subdued recovery rather than boom times. It will take years for growth to recover, he says, in part because consumers have learned beneficial lessons of frugality. A Limited Supply There are additional factors that have made Doug especially bullish on municipal bonds. For one, they are exempt from federal income tax. Substantial tax hikes planned by the Democrats will therefore make municipal bonds even more attractive.  Munis also are exempt from a tax that affects mainly the wealthy: the 3.8% levy on investment income under the Affordable Care Act.  Limited supply is another reason munis stand to do well over the next couple of years or longer, he says. Cities will not have to raise as much money with bonds because the states have received hundreds of billions of dollars in stimulus grants. You can access the full report by clicking here.

Greasing the Slide Toward Deflation

With home prices pumped to record levels, we are hearing more and more about Uncle Sam’s plan to avoid sticking it to taxpayers when the next crash hits. Although it’s always wise to have a plan to deal with catastrophe, especially one that is inevitable, there are reasons to doubt that a mortgage market valued at $12 trillion could unravel without taking the economy and much else — including, conceivably, our system of governance — down with it. Consider that Fannie and Freddie, ground zero in the 2008 crash, still own roughly half of all U.S. mortgages — as much as the three largest banks — but lack reserves sufficient to cover more than a small fraction of bondholders’ losses if it happens again. Of course, the next crash could conceivably be worse, since the financial system is much more leveraged than then. That’s a concern the Feds may not have fully considered when they created “living wills” for financial institutions under the 2010 Dodd-Frank bill.  The law requires large banks to file workout plans that would seek to mitigate the risk of upending the financial system and the economy while accountants deal with the quagmire. Extending this rule to the GSEs reportedly is the last piece of legislation needed to complete the Dodd-Frank reforms. ‘Affordable Homes’ a Gimmick We should all be grateful that someone in Washington has thought this through. But how deeply? As former heavyweight champ Mike Tyson famously said, everybody has a plan until they get punched in the mouth. And what a devastating punch this one would be. My own forecast, which predates the 2007-08 real estate collapse by more than a decade, calls for a 70% plunge in home prices, with losses on vacation homes reaching as high as 90%. This may sound overly pessimistic, but recall that we got nearly halfway there in the aftermath of the 2007-08 crash, when the average home lost 35 percent of its value. In the recovery since, unfortunately, prices have gotten even more pumped, goosed to a significant extent by private equity’s aggressive move into the home rental market. They’ve bought or built homes to lease to people who manifestly cannot afford to buy them. Arguably, a financial whiz could not have come up with a better scheme to reconstitute the weaknesses in subprime lending that gave the 2007-08 crash such a wallop. Under the circumstances, when that punch in the mouth comes, it seems likely to inflict more damage than those who think we’re prepared for it may be imagining. It’s not difficult to foresee what would happen next: Most homeowners would be underwater on their mortgages, with lenders neither wanting, nor able, to evict them. To avoid this, most mortgages would eventually have to be rewritten as leases. This would be the best way to squeeze blood from a stone, tailoring monthly payments so that even the nearly destitute could avoid homelessness during the coming Second (or Third if you count 1873-1895) Great Depression. The Global Ponzi It also explains why America’s economic day of reckoning will be marked by ruinous deflation rather than by an inflationary spiral that nearly everyone these days seems to expect. Forget about Biden’s fiscal blowout and rampant Fed stimulus, which supposedly are about to send prices out of control. Only for the time being will this illusion persist.  For in the end, both Biden and the Fed together will have added only mere trillions of inflation to the economy — a pittance compared to the deflation that will occur when the financial system’s $1.5 quadrillion derivatives Ponzi — that’s $1,500,000,000,000,000 — implodes. The deleveraging tremors to follow will reduce the asset side of the global ledger by perhaps nine or ten zeroes as deflation runs its course. The sucking power of this black hole will come from a stock market crash, a collapse of asset values in general, and from tens of millions of strapped homeowners who owe more on their homes than they will ever be worth. Although a decision by The Government to hyperinflate would rescue them, allowing them to effectively stiff lenders with worthless $100,000 bills, does anyone actually believe this could happen?  Not if the banksters and their lackeys on Capitol Hill have their say, it won’t. And that is why deflation will rule the endgame; for there is no way borrowers will be allowed to skip free on their mortgages. The real burden of what they owe will increase with each deflationary turn of the screw, and the economic devastation this will cause cannot be legislated away. As for the Rich… Nor will the 1% get automatically richer during what will be fundamentally a deleveraging event. What they own now is heavily salted with inflated paper assets that will be as worthless as Pokemon cards when the dust has settled. What income they are able to derive from investables of the highest quality’- — i.e., prime rental property and energy resources —  will depend on having desirable tenants and a modicum of economic activity.  Bugatti Veyrons, Patek Philippes and Hermes handbags will still be selling — just not as many of them.  Ingots of gold held for such a day will still buy such luxuries, but don’t expect to trade bitcoin for them at the current rate of exchange.

When Bulls Turn Certain

We went out on a limb here last week with speculation that, just maybe, the bull market was topping. Alas, Friday ended with a short-covering orgy that bloodied bears, leaving the boldest of them festooned on the ropes. My hunch had been rooted in technical factors, including an ominous head-and-shoulders pattern that has been evolving since January in IWM, a vehicle that tracks the small-cap Russell 2000. Unfortunately for bears, rather than dropping into a steep dive like the textbook says it should have, the index tacked on five new bars to the right shoulder, turning its promising symmetry into asymmetrical dross — a mocking, rubberized Mona Lisa smile. Similarly, the E-Mini S&Ps had seemed well poised for a long overdue plunge. They’d turned down sharply the week before after getting within an inch of a major ‘Hidden Pivot’ resistance that was capable in theory of stopping a buying stampede. By Friday’s close, however, El Toro had gored the resistance and was snorting flames. In both instances, the geniuses who purport to be “managing” your and Other People’s Money provided bullish spin and buoyancy. But when the rally threatened to turn ballistic on Thursday, bears scrambled to buy ’em back lest they get trampled this week by Wall Street’s recurrent homage to Pamplona. Can you blame them for panicking? With the Fed monetizing full-tilt and Joe Biden hawking a version of the New Deal that makes FDR’s look miserly, who would be so foolhardy as to bet against the asset bubble? Add corporate share buybacks to the raucous mix of monetary and fiscal stimulus and it becomes difficult to imagine how the bull market could possibly end. Apple’s announced $50 billion buyback alone will help sustain the illusion of health in the U.S. pension system while eliciting more unearned huzzahs for Wall Street’s best and brightest even though they’ve been on autopilot since 2009. Bitcoin’s Awesome Rumble And yet, there was the sobering spectacle of bitcoin, the most wildly deranged vehicle of them all, acting like there might actually be a tomorrow. It has been flouncing ungainfully since early March, belching fire and making hellacious noises like a dragster waiting for the amber light to change. But amber has persisted for too long and undoubtedly is making the crypto crowd stir-crazy, since none of them doubts that $100,000 bitcoin is coming eventually. Seasoned commodity traders know better, however, and are doubtless preparing not for inflation to go vertical, as nearly everyone seems to expect, but to be asphyxiated by some turn of events too mundane to have been predicted. In the meantime, bullish sentiment appears but one strong rally removed from becoming bullish certitude. If the upsurge in shares comes amidst a summer of post-lockdown jubilation, that would be good reason to secure the hatches and reef the sails. Hurricane season has produced no disasters on Wall Street that crypto’s most avid traders would recall, and that is all the more reason to take seasonality quite seriously with the approach of autumn 2021.

Here’s One Fraud We Can Eliminate

First, let me titillate all of you die-hard permabears with a ray of hope:  A potentially important top may have formed last week in, respectively, the E-Mini S&Ps and in IWM, a proxy for the Russell 2000. The former stalled inches from a ‘Hidden Pivot’ resistance at 4222.82, while the latter turned down precisely on schedule after tracing out the right shoulder of a nasty-looking head-and-shoulders pattern. I must caution you against making too much of this, however, since the stock market since 2009 has blasted free of a dozen similarly daunting predicaments, even achieving enormous gains during an economically devastating pandemic. Still, one can always hope that the time for a long overdue and presumably healthful correction has finally arrived. Just one additional note of caution: If stocks bull-doze their way higher next week, the S&Ps should be presumed headed to at least 4536, a level that would equate to a 3000-point Dow rally. Now on to something with more impact on our day-to-day lives: auto-warranty scams. This plague interrupts tens of million of us each day with robotic phone calls offering worthless car-service agreements. All of us have received scores if not hundreds of these nuisance calls over the years, sometimes two or three of them in a single day. Supposedly, if you follow the voice prompts, you can purchase an extended auto-service policy for $3,000 that will turn out to be useless when it comes time to file a claim. Big Money Despite this, the scam is obviously making some crooks a lot of money, since the calls — billions of them — just keep coming and coming and coming. Mine come mostly from spoofed Colorado numbers (where I lived for 20 years) and hit in the late afternoon or early evening. Although I use a call-blocker that cuts the robot’s message short, my Android phone still rings or vibrates to announce the call. One might think there would be effective ways to deal with this nuisance, but as far as I have been able to determine there are none; that’s why the calls never cease.  Although there are web sites that allow one to file complaints with the FTC or the FCC, this is like emailing a county clerk in San Francisco, Los Angeles or New York trying to get a pothole filled. So what can we do about it? My suggestion is to set up crowdfunding sites to accomplish what the government evidently cannot, or will not, do — i.e., find the perps and punish them severely. Publicly hanging these scumbags would enjoy strong popular support and doubtless discourage imitators. But short of that, we might hope to put a few of these cockroaches behind bars for a few years. There’s always the possibility we’ll be dealing with some Kazakhstan hacker who’s as difficult to corner as a Yeti. But where there’s a will there’s a way, and with enough donations it should be possible to bring auto-warranty douche bags to justice, if not to the scaffold.

Tax-Hike Talk Just an Annoyance

Headline writers hyperventilated last week over the prospect of higher capital gains taxes while the stock market took it in stride. Biden wants to double the levy on long-term investments to 39.6%, ending a felicitous run at 20% that was enacted 40 years ago under President Reagan. The Wealthy Will Fight Him to the Death, proclaimed a teaser above a Los Angeles Times column. And Bloomberg.com hoisted this ‘Mayday!’ above the fold: Rich Americans Face Biden Tax with Anger, Denial and Grief‘. They’ll get over it, as we well know; they always have. And what is the secret of their Zen forbearance? It is this: Make so much money that even after giving half of it to the revenuers, there will be plenty left to summer in the Hamptons and charter Mediterranean yachts without feeling pinched. And now more than ever, there is consolation in knowing that whatever sums The Government’s left hand taketh pales in comparison to what the right hand giveth — namely, ‘stimulus’ that all but promises to inflate asset values to infinity. In the unlikely event it is enacted, Biden’s proposal would put well-heeled investors in high-tax states like New York and California over the 50% threshold for total taxes paid. The well-to-do have been fleeing to low-tax jurisdictions such as Nevada, Florida and Texas anyway, but a tax hike would undoubtedly hasten the exodus, even of rich Biden backers who disingenuously claim to love Big Government wholeheartedly. In the meantime, although year-end tax selling could increase if talk of a tax hike grows serious, it seems unlikely to faze a bullish herd that has stampeded through a global pandemic and 20% unemployment. Bitcoin No Tax Haven Dramatic headlines aside, the stock market shrugged off the news much as it has been doing ever since the bull market began in 2009. The Dow sold off more than 400 points on the news but closed well off its lows. This set the scene for a mild short-squeeze on Friday that seems likely to carry into next week/month/year. Traders reasoned, correctly, that no matter where wealthy individuals relocate themselves and their savings, they will still need to park their lucre somewhere. One news report gratuitously quoted a guy who thinks higher taxes would make bitcoin an even more enticing investment, if such a thing were possible. Why should that be so? That’s a question the reporter didn’t think to ask, but bitcoin is probably the last place we should look to ‘escape’ higher taxes on capital gains.

A Simple Explanation for Bitcoin’s Plunge

Bitcoin mania hit an air pocket on Sunday with a so-far $11,500 plunge from last week’s record-high $64,858. Groping for an explanation, Bloomberg and other mainstream sources attributed the drop to speculation that the U.S. Treasury might crack down on digital-money laundering. Yeah, sure. This tired story has been marking time for a decade, ever since the days when only a few hardcore gamers knew about blockchain money. Now it is being reheated and served up as a convenient explanation for bitcoin’s nuttiness, much as stories about “tariff fears” and “vaccine hopes”‘ were trotted out each and every time mass psychosis seized traders. Crypto fans had better get used to the crackdown story. Recall that it took almost two years for the news media’s tariff-war allegory to die a natural death. This occurred when the “war” itself became too convoluted for the supposed experts to explain. Eventually, and mercifully, they came to realize that they were only embarrassing themselves when they tried.  Now financial writers have trained their wellspring of ignorance on the latest tabloid story involving markets — the epic mania in cryptocurrency. While this may be a welcome respite from sensationalist blather about how Reddit kids were crushing the hedge funds, it hardly serves to explain bitcoin’s rabid swings. So let me try, even though the simple explanation is voodoo stuff that will never surface on Bloomberg or Jim Cramer’s vaudeville show. ‘Hidden Pivots’ Rule! First understand there is no rational explanation for the day-to-day histrionics of deranged markets. The overarching mania is not hard to understand. It exists, and intensifies until climax, because speculators increasingly become convinced they can get rich quickly and with little actual work.  However, short-term whoops, dives and spasms can be explained and even predicted only by using charts.  Thus can we assume that bitcoin’s big drop on Sunday was unrelated to any particular news. In fact, it began, unsurprisingly, from within 0.1% of a clear Hidden Pivot resistance at 64,953 shown in the chart. As for the ‘crackdown’ explanation, we can be certain it will vanish the moment bitcoin’s bullish rampage resumes. Rinse and repeat. Now for the technical picture. If you have trouble with chart voodoo, stop by the Rick’s Picks chat room and ask about it. Subscribers will tell you that, for all the wild price swings, bitcoin has yet to generate an unprofitable ‘buy’ signal based on a proprietary trick we use called a ‘mechanical’ set-up. Moreover, it would do so again if the current plunge were to hit the green line, a Hidden Pivot benchmark at exactly 50,400. The trade would be predicated on an eventual recovery to $72,230. A word of caution: This trade is not for amateurs or the faint-hearted, since the initial risk, using a stop-loss just beneath the pattern’s point ‘C’ low at $43,123, would exceed $30,000 for four round lots. We have ways to cut that down to $3000 or less theoretical, but you’ll need to immerse yourself in the chat room for a couple of weeks to discover how.

A Contrarian Bet Against Inflation

The inflation trade is struggling for loft, a potential victim of its own, wild popularity. “We don’t have strong reflation-trade momentum at the moment because people are waiting for more data,” said Daniel Tenengauzer, markets strategy chief at Bank of New York Mellon. By his logic, all that it would take to stoke inflation would be a little more…inflation. So much for investors’ supposed collective prescience. Tenengauzer and his flock should instead be asking themselves when was the last time every investor on the planet got on the same side of a bet and made money. Answer: never. That hasn’t stopped them from praying that Tuesday’s release of CPI numbers for March will show a significant jump. Don’t these guys know that the harder they hope for statistical evidence of inflation, the less likely it is that the markets will move their way if and when it comes? Buy the rumor, sell the news, as the saying goes. Prominent among those who have made money for clients in the past by betting against the popular wisdom is Lacy Hunt, chief economist at Hoisington Investment Management.  The firm’s official position is that “inflationary psychosis” has gotten too far ahead of the real thing. Hunt is an old-timer who well understands how inflation fears can flout reality – for decades, even –causing otherwise astute investors to do the wrong thing. That was the case from about 1980 on, when the few un-fearful investors who stuck with Treasurys made a bundle, racking up capital gains of 15% or more in many years. They outperformed the herd because bond prices at the long end of the yield curve are highly leveraged inversely to small decreases in short term rates. There were blips against this strategy, of course, such as in 1991, when nearly everyone expected the S&L bailout to produce inflation. It didn’t, and the few investors who stood their ground in Treasurys, strips and municipal bonds enjoyed a remarkably good run – one that was to last for nearly 30 more years. Mortgage Debt Is Key The jury is still out on whether the party is over. If so, the spike in Treasury prices in March of 2020 would have marked the last gasp of a nearly four-decade bull market. I am betting otherwise, advising subscribers to position themselves with a “barbell” hedge consisting of Treasury paper versus gold. The unpopularity of both right now is reason enough to stake out a position in them. But there is also logic to support this strategy, since, if inflation ever does go out of control, gold is bound to catch fire. Alternatively, if an economic collapse occurs and plays out in waves of bankruptcies, this would be deflationary and favor T-Bonds, if not for leverage then at least for safety. One thing that is not in doubt is that the U.S. and global economies are headed toward catastrophic failure. It could not be otherwise in a world where financiers reap vast riches by manipulating thinly collateralized assets equal to ten times the value of global commerce involving actual goods and services. A day of reckoning is coming, and it seems most unlikely that it will come via a hyperinflation that would effectively stiff creditors and allow all who owe to skip free. If there are any hyperinflationists out there who can explain how mortgage debt in particular will be repaid with $100,000 bills earned in a week, then please state your case.

Biden’s $2.2 Trillion Trojan Horse

Biden’s $2.2 trillion ‘infrastructure’ plan is quite ambitious as far as Government boondoggles go. But what if it’s just the Democrats’ opening bid? “We can do $10 trillion!” exhorted Alexandria Octavio-Cortez in a wild-eyed remark that is unlikely to be challenged by fellow Democrats or the New York Times.  Even $10 trillion would be chump change, however, if Biden’s Trojan horse for the Green New Deal births the full-Monty environmental and civic transformation envisioned by AOC, Bernie Sanders, Elizabeth Warren and some other socialist zealots on the Hill. It is ironic that Biden chose Pittsburgh as a backdrop last week to showcase the pandemic era’s first fiscal-stimulus monstrosity. Pittsburgh has been a model for urban redevelopment in the post-War era, having avoided getting sucked into an economic quagmire by its dying steel industry. Instead, the ‘Iron City’ transformed itself into an urban success story with massive investment in health care, banking, higher education, parks and cultural amenities. Is the Federal Government capable of deploying funds so judiciously?  It seems unlikely at a time when America’s political leadership has embraced the practice of financing vast Federal outlays with money from trees. Note also that Pittsburgh’s regeneration was achieved over many decades with private investment that sought maximum economic returns. In contrast, Biden’s plan seeks maximum political returns and contains little actual spending on potholes. With a partisan emphasis on social engineering, it seems more likely to clone Detroit’s dereliction than Pittsburgh’s prosperity. ‘Racist’ Highways Indeed, only a reported 5% of the proposed new trillions is earmarked for the repair of roads and bridges. A significant share of what remains evidently would go toward social tinkering and — heaven help us! — improving the weather. That’s what Pete Buttigieg, among others, has in mind, believing as he does that the transportation sector is driving ruinous climate change. Some politicians would use the money to undo damage wrought by ‘racist’ highways. In New Orleans, for instance, there is talk of tearing down the Claiborne Expressway, which, supposedly by design, divided rich white neighborhoods from poor black ones. (Does this imply that ‘divisive’ stretches of I-95 will have to be torn down as well? If you scoffed, then you don’t understand the new political zeitgeist.) There’s also a big push for more electric vehicles, as though they were manufactured and assembled using non-polluting energy and powered by batteries made from recycled milk cartons. There is good news for Tesla owners, though, in the form of $174 billion worth of new charging stations. Fortunately, the mighty wind it will take to electrify them will always be in plentiful supply on Capitol Hill.

The Myth of American Affluence

The technological wizardry that has given us smart phones, desktop computers, electric cars and flat-screen TVs has masked a pernicious decline in America’s standard of living since the 1950s. One area where this is painfully obvious is the deterioration of customer service. Recall the scene in Back to the Future when a car pulls into a filling station and three attendants jump up to pamper it. One checks under the hood, another makes sure the tires are properly inflated and a third pumps 28-cent gas.  Director Spielberg intended this as a wry comment on how much companies valued their customers back then, and how hard they worked to keep us happy. These days, most companies care so little about us that they have cut off access to phone support, even for the most serious problems. The Death of Support A friend recently spent more than fifty hours trying to clear up a billing problem with Amazon. She could not access her account, and each time they reset it she would find herself locked out again the next morning. Although Amazon offers limited phone support, in this case it was useless because the problem was deemed “technical” and unrelated to a merchandise screw-up. It took literally hundreds of phone calls to get nowhere, and every call was impeded by the familiar gauntlet of voice menus. Even with a case number, it took 20 minutes to reach a supervisor. At least a dozen of these guys interceded along the way, creating a daisy chain of broken promises and meaningless apologies. Where abusing customers is concerned, Facebook is in a class by itself, so inscrutable, opaque and coldly uncaring that one might think they’d outsourced call support to North Korea. I was spending as much as $5,000 a month with them on advertising; then, with no explanation, they banned me from promoting on their site. The move seems to be related to their shift to two-step authentication. But jumping through a dozen hoops has yet to elicit an explanation, much less a remedy. The death spiral of brick-and-mortar retailers threatens to put Facebook and other uncaring companies whose chief business is ruthlessly mining eyeballs in charge of a widening swath of our lives. The Good Life, Circa 1955 Concerning the filling-station scene in Back to the Future, we might infer that the three energetic gas jockeys enjoyed certain amenities of the good life that have become increasingly unaffordable for America’s middle class. Here’s a short list, and you can add your own: Stay-at-home moms Poor neighborhoods that were clean and welcoming Four years of college Charming homes in neighborhoods with good schools Doctors who made house calls Human cashiers at checkout counters Socks and shirts in personal sizes Well-appointed railroad dining cars Spacious seats and decent food on airplanes Free checked baggage Milk delivered fresh to one’s doorstep Solid-wood furniture Concerning the ongoing dereliction of customer support, it has made everyone’s life more difficult. Robotic assistance is not merely a poor substitute, it is an affront to customers. Had those of us who grew up in the 1950s been able to visualize the amazing electronic gadgets that are everywhere today, we might have inferred that affluence had reached a pinnacle – that, as William F. Buckley once put it, we would be feasting on nightingale tongues.  Instead, we have only the superficial veneer of affluence, much of it in the form of electronic gadgetry, smart appliances and even smarter cars, all purchased with overly generous credit. …while America Crumbles In the meantime, America’s roads and bridges are crumbling, squalid tent and RV encampments have inundated our largest cities, brick-and-mortar retail outlets have become deserted shells — all while public and private debts have mounted beyond reckoning. The retirement system, including Social Security, will fail long before Baby Boomers live to collect their full share. And while Gen-xers and Millennials may be enjoying a golden age of consumer electronics, they appear destined to become wards of a bankrupt state. We can only hope their children revert to some of the tried-and-true practices of the past — to schools that teach, and to a pay-as-you-go lifestyle that does not encumber them with debt. There are no shortcuts and no free lunch, but it is impossible for young people to understand this when both illusions seem to be succeeding so well.

Just How Smart IS the Smart Money?

I’ve avoided the pandemic, politics and economic doomsday as topics recently because there’s only so much one can say about them. This is especially true of the coming bear market.  Coming exactly when, you might ask? Of course, even the very best of us gurus is unlikely to produce the correct answer, other than in after-the-fact promotional material that shamelessly bends the truth.  My own technical work suggests the market may already have topped, since most of the major indexes have stalled within inches of Hidden Pivot targets I’d drum-rolled weeks or even months earlier. IWM, for one, has yet to surpass the 234.82 objective disseminated to subscribers six weeks ago.  A proxy for small-cap stocks, it peaked at 234.53 on March 15 and has sold off moderately since.  Similarly, a QQQ target at 337.10 that first appeared here five weeks ago caught the peak of a spike on February 16 that hit 338.19. And there was a well-advertised, very long-term DIA target at 327.27 that has been exceeded only slightly so far. Rotate This, Mack! Ordinarily I’d be pretty jazzed about all of these possible tops occurring more or less simultaneously and within easy distance of compelling Hidden Pivot targets.  I tend to rely solely on my charts rather than on my gut in order to be reasonably certain about market trends and turning points; but in this instance I am drawn to more subjective evidence. Specifically, the machine-like rotation of buying from one sector to the next that has been occurring routinely is evidence that the crooks who make their living at it are still very much in control of the game. Thus whenever stocks are falling, we can safely infer it is because the crooks are keen to accumulate them at lower prices. Rotation also provides an efficient way to hoist the stock market to higher and higher levels. Indeed, even with practically unlimited sums of Other People’s Money at their reckless disposal, it takes a rising sea of it to float the entire, shoddy edifice to grandiose new heights. Thus, we have weeks when the tech stocks look great, only to turn to dross overnight. The Dow Industrials have seemed to move opposite them lately, but this is only because the chimps who manage your money cannot handle investment themes any more complicated than that: if monkey sell energy, then monkey buy techs; monkey love bank stocks, monkey pummel growthies. The supposed Masters of the Universe don’t meet in smoke-filled rooms to decide such things, either. No, the tactics they employ are driven by motor neurons that control bowels, muscles and glands, not higher reasoning. But the net effect is impressive nonetheless, since whole categories of stocks are efficiently rotated ever higher in cycles that harmonize with the flow of money from greater fools. This is as close as the feather merchants have come to creating a perpetual motion machine, and it challenges one to imagine what could possibly cause the gears to seize. Higher interest rates would be my guess, and they do happen to be rising quickly enough to weaken the entrenched certitude that the Fed knows what it is doing. Chairman Powell’s statement last week that he sees no threat from inflation hardly bolsters the argument that his economic IQ is above dolphin levels. The guy has become an embarrassment, really, although the chimps were so busy rotating OPM that they hardly seem to have noticed.

Making Up for Lost Time

The rabid mania that has seized the world of investables has gotten so much ink lately that I thought I’d explore an equally curious phenomenon with a far greater impact on our daily lives. Have you noticed how time seems to have taken wing during the pandemic?  Each Friday follows the last so quickly that, speaking as a man in his 70s who is rounding the final turn, I struggle to invent ways to keep the months and years from slipping away with equally alarming speed. I have a possible solution, one that could work for you as well that I will tell you about it in a moment. But first let me ask whether you’ve experienced the same thing yourselves. For me, the speed-up of time started to become unsettling when the interval between haircuts seemed to grow shorter and shorter. I typically let six weeks go by, but lately my hair has started to look pretty shaggy after only a few weeks. Or so it seemed. When I started recording the date of my last clip-job on an Outlook calendar, I discovered that what had felt like a mere three or four weeks since my last haircut was actually closer to the normal six weeks. Too Much Urology The same seeming compression of time has occurred in other areas of my life. Dental appointments spaced at four months have begun to feel as though they are popping up twice as often. Biannual visits to my urologist now stare me in the face seemingly every time I flip the calendar. I can hardly keep up with Outlook reminders to send out birthday cards, and yearly payments for life insurance, long-term care coverage and golf-club membership are coming due relentlessly. What could account for this feeling that time is accelerating? Thomas Mann’s opus The Magic Mountain offers a profoundly insightful answer. The relevant chapter is called Excursus on the Sense of Time, and it so lucidly illuminates how we experience the passage of time that I have republished a key excerpt here several times over the years. In the Excursus chapter, Nobelist Mann is the poet-philosopher’s Einstein, a supremely gifted writer at the height of his literary powers. He likely would have viewed the shift toward pandemic-induced sameness in our days as potentially harmful to the human psyche. Indeed, the threat of contagion has severely limited the scope of our daily activities, producing monotony. As to its harmful effects and the ways in which it has altered our perception of time as we experience it, I will quote Mann at length, since no summary could do justice to the luminous truth of his observations. The passage is from H.T. Lowe Porter’s translation, in a Knopf edition, of Der Zauberberg: The Tempo of Monotony Many false conceptions are held concerning the nature of tedium.  In general it is thought that the interestingness and novelty of the time-content are what “make the time pass”; that is to say, shorten it; whereas monotony and emptiness check and restrain its flow.  This is only true with reservations. Vacuity, monotony, have, indeed, the property of lingering out the movement and the hour and of making them tiresome.  But they are capable of contracting and dissipating the larger, the very large time-units. to the point of reducing them to nothing at all. And conversely, a full and interesting content can put wings to the hour and the day; yet it will lend to the general passage of time a weightiness, a breadth and solidity which cause the eventual years to flow far more slowly than those poor, bare empty ones over which the wind passes and they are gone. Thus what we call tedium is rather an abnormal shortening of time consequent upon monotony. Great spaces of time passed in unbroken uniformity tend to shrink together in a way to make the heart stop beating for fear; when one day is like all the others, then they are all like one; complete uniformity would make the longest life seem short, and as though it had stolen away from us unawares.  Habituation is a falling asleep or fatiguing of the sense of time; which explains why young years pass slowly, while later life flings itself faster and faster upon its course. We are aware that the intercalation of periods of change and novelty is the only means by which we can refresh our sense of time, strengthen, retard and rejuvenate it, and therewith renew our perception of life itself. Such is the purpose of our changes of air and scene, of all our sojourns at cures and bathing resorts; it is the secret of the healing power of change and incident. Using Your Yard Creatively So how can we “rejuvenate our sense of time” as the pandemic’s grip on our daily lives begins to loosen? Enjoying the outdoors has been an obvious answer all along, but other avenues are beginning to open up as more people get vaccinated. My idea –something you or anyone else can do — is to produce a backyard concert with a neighbor. Friends of mine in Boulder have been doing this for years, but the pandemic put a temporary halt to it. With spring approaching, however, it’s a perfect time to revive this kind of low-key entertainment. Musicians are hungry for work, and their fans are more eager than ever to hear them “live”. Because musical talent is so underpriced, you can hire the very best in the world at an affordable price, especially by passing the hat at the end of the show. To inspire you, here are links to YouTube videos of three favorites of mine whose music I’ve enjoyed in intimate settings, including the basement of a friend’s home: percussionist Rony Barrak; blues harp player Mark Ford; accordionist Alicia Baker and pianist Joanne Brackeen. Each is as talented as anyone you have ever heard in a large concert hall, and all it would take to hire any one of them is a phone call to their agent or the local musician’s union.  Live theater, dance and chamber music are just as affordable and available for the asking. Call a local or regional repertory theatre to get things rolling for a great summer’s night in your own back yard. They’ll be thrilled to hear from you.

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