The Morning Line

To Pivot, or Not to Pivot, That Is the Question

To pivot, or not to pivot? That is the question Fed Chairman Powell will have pondered over the weekend while tending chicken breasts, franks and burgers spaced meticulously on the grating of a 148,000 BTU grill. If conscience doth indeed make cowards of us all, we might expect him to act boldly. But how? Does he risk gutting the American Dream for a generation or longer by staying the course? Recall that his last utterance, on March 7, implied not merely that credit tightening would continue, but that it would accelerate. The stock market reacted like a concertgoer sitting in the middle of a row who has just felt the first gurgle of food poisoning in his bowels. Sellers panicked with spasms that quickened as the week wore on, and it was fully five days before fears appeared to recede. Investors opened their air locks last Monday and cautiously drew a lungful of what they hoped would be oxygen. It was, with just enough helium to make the broad averages frolicsome at times, if not quite giddy.

One could almost forget that the U.S. economy is in shambles as some of the biggest multinational companies continue to scale back growth and axe workers by the tens of thousands. Biden’s tax proposal threatened to beggar what remains of America’s middle class; the nation’s military preparedness was being exported to Ukraine; and our three worst enemies — China, Russia and Iran — were making nice to each other.  Although GDP growth was officially reported most recently at around 3%, pundits were unofficially speaking of recession as though it were an entrenched reality, not merely a threat.

The Haymaker

If the picture were not already grim enough, the haymaker came last weekend with the failure of two large banks that cater to tech companies, Silicon Valley Bank and Signature Bank.  The Fed did what it had to do to calm the herd, lifting the $250,000 cap on insured deposits to…whatever. Backing from the U.S. Treasury and the FDIC supposedly put taxpayers on the hook for as much as $9 trillion, but when the numbers get that large, who’s counting any longer?

Powell has been almost Volcker-like in stomping his foot on the brake and keeping it there. He faces a tough choice, though, since even a pause rather than a pivot would act like methamphetamine on Wall Street’s tiny, fevered brain. My guess is that he will pause anyway, but with a profuse warning that the hiatus will not last. This cautionary note is unlikely to restrain the stock market, especially since everyone will recognize it as a bluff.  Indeed, however much Powell & Co. may want to keep on tightening, they will not be able to do so when the so-far trickle of deposits leaking out of regional banks and into the digital vaults of the Big Four turns into a flood.  We’ve all wondered for a decade what form the inevitable black swan might take, but this scenario seems plausible enough to be taken seriously.[For an explanation of why the Masters of the Universe and their Guvmint lackies could not impose a digital money system on America in a crisis, click here for my recent interview with Howe Street‘s Jim Goddard. I also explain why bitcoin is worth perhaps $3-$4 rather than $27,000 (let alone $70,000).]

Building Better Cities, Marxist-Style

[This week’s commentary was written by  David J. Isham a longtime subscriber to Rick’s Picks. A real estate investor and trader, David lives with his family in Marin County.]

For Americans eager to embrace socialism, China’s take on the so-called 15-minute city will warm your hearts. As an urban planning concept, the 15-minute city aims to put all of the usual neighborhood amenities within easy walking distance: grocery stores, parks, urgent care centers, banks, movie theaters, etc. Sounds like a great idea, right?  However, in the Peoples Republic of China, the government has been adding a digital innovation that Chairman Mao would have loved: scanners that require one to submit a QR code in order to move around. If you live in one of the newly wired cities and have criticized government policy on social media, or you haven’t received your latest booster shot, your impaired social credit score will prevent you from leaving your neighborhood zone.

Could it happen in the U.S.? Arguably, the idea had a test run when many Americans and their elected leaders clamored for vaccination passports and all kinds of access restrictions for the un-jabbed.  Fortunately, the former never came to pass and the latter did not spread into the American heartland. However, if implementing a social credit system were to be placed on a national ballot, does anyone doubt that it would garner almost as many votes as Biden supposedly received in the 2020 election?  Tune in to the discussion at @songpinganq on Twitter if you want a glimpse of what you may someday be up against.

Seeking Out Good Neighbors

Although a grim future is not set in stone, I’ve thought about a time when my children might not be allowed to work, to attend college or even enter a grocery store without a QR code. However, because there’s nowhere to run, I’ve decided to stay put in Northern California, the land of fruits — and nuts, the better to seek out like-minded people in my area. We’re going to need each others’ support, both spiritually and financially, to survive what’s coming. Just the other day, I visited a new dentist who never bought into vaccine-mania. Most businesses here in the Bay Area, especially health-related ones, are still masking, and so it was a relief to be greeted by a receptionist whose smile was visible and who doesn’t let microbes rule her life.

Ending meat consumption is another dubious goal our leaders have in store for us, since they know that meat helps keep us strong and healthy. To ensure a healthful supply of animal protein for my family and neighbors, I’ve begun building relationships with local ranchers. Dining on grass-fed beef with friends recently, my wife remarked that it reminded her of how real beef tasted in Vietnam, where she grew up.

Trading to Survive

So how are we going to make a living if things get even crazier? One of the reasons I spend so much time at Rick’s Picks stems from my concern that there will come a day when survival itself could depend on my success at trading. I will do everything I can to teach my kids what I’ve learned about this work. I’ve discovered over time that exploiting even relatively small price fluctuations can provide a comfortable life — comfortable enough that I have plenty of  time to spend with my wife and kids.

Creating ‘Wealth’ Is 99% Inspiration and 1% Perspiration

Americans grew effortlessly richer last week when a two-day rally in stocks and bonds added many hundreds of billions of instantly spendable dollars to the economy. Most of it would have dropped into the hands of traders, speculators and portfolio managers. However, enough will trickle down to sales reps at Bijan, Dolce & Gabbana and Bulgari that the big-ticket binge eventually will turn up as GDP growth.  AAPL, a Bellagio fountain of liquid wealth, added perhaps $90 billion all by itself when it rose 3.5% on Friday. Not too shabby, considering the rally stemmed almost entirely from short-covering rather than bullish buying. How do we know this? Simply because the fleeting, shallow pullbacks the entire way up evinced the mini mood-swings, from hopefulness to despair to capitulation, that bears exhibit when things are not going their way. Glimpsed on the intraday chart above, the rhythms of the water-drip torture they endured for two days are as distinctive and ominous as atrial fibrillation on an EKG tape. AAPL’s rally was more decapitation than torture, with at least 80% of it occurring in the first hour on gossamer volume.

 

Exhaustion Spike

 

We continue to view the uptrend as a bear-market fake, implying it is incapable of achieving new all-time highs. But it could get close enough to scare the hell out of bears, and that’s exactly what it will do if they continue to fight it. Such battles tend to end with an exhaustion spike, followed by a headline reaction to the downside. The sudden revival of the bear market begun in January 2022 promises to be a doozy. Although Papa Bear’s initial phase, which lasted ten months, lopped 22% from the value of the Dow Industrials, it lacked the climactic selling that would have signaled that the worst was over. It is still to come, and it will ultimately mirror the grotesque excesses of the wildest bull market in U.S. history. Bad news will continue to be celebrated until then, and good news mourned, since Wall Street interprets headlines and economic data solely for the purpose of anticipating and second-guessing the Fed. This is navel-gazing on an epic scale, a civilizational marker no less embarrassing to humanity than the dozen or so large countries run by clowns, scoundrels, sociopaths, or — sometimes  — the rare vote-getter with a flair for combining all three.

Uranium’s Bull Market Has Barely Begun

Uranium investments topped the list of exciting takeaways from the Mines & Money conference held in Miami last week. Keynote speaker Chris Temple, editor of The National Investor, dispelled nagging doubts about atomic power’s future when he noted that Greta ‘How-dare-you!’ Thunberg has been distancing herself from fellow activists who remain vociferously opposed to nuclear energy. She may be an insufferable scold, but there is no denying that she is also a top global influencer of environmentalists. Try Googling just ‘Greta’ if you need to be convinced; it is not fellow Swede Garbo whose biography pops up.

Thunberg has very publicly urged Germany not to decommission its few remaining reactors this year as planned. She is hardly alone in having recognized belatedly that nuclear power is the only economically viable alternative to carbon-based fuels. With the Fukushima disaster of 2011 receding from memory, Japan and South Korea have finally seen the light, joining the U.S, U.K., Belgium, Finland, Poland, Czech Republic, Romania and others in their growing appetite for reactor-based power.

Two Growth Pathways

Look for the nuclear industry’s growth to unfold mainly along two pathways created by 1) burgeoning demand from industrialized nations for large power stations in the 1000-gigawatt category; and 2) correspondingly robust demand from hundreds of cities and communities for small, modular N-plants that can recycle radioactive fuel pellets.

John Borchoff,  managing director of a company called Deep Yellow [OTC: DYLLD] that is focused on Namibian ore, sees his firm as particularly well positioned to benefit from these trends. As demand for uranium grows, he says, buyers will seek out the biggest, most reliable producers to meet their needs. Smaller miners will get bought up by the relative handful of companies capable of delivering at least two million pounds of uranium per year. Deep Yellow is poised to join that list, says Borchoff.

A Miscalculation

The uranium story is no longer hot news, to be sure. Stocks in the sector bottomed early in 2020, and some have more than quadrupled since. Even so, the next wave of share-price appreciation has spectacular potential, Borchoff asserts, because so many utility companies still think plentiful supplies of uranium are assured. This misperception is logical, given that the number of operable N-plants in the U.S. has been falling for more than 30 years. Also, there appears to be enough unmined uranium to meet the world’s energy needs for the foreseeable future. But with the very large increase in demand that is coming shortly, the infrastructure needed to get it out of the ground and shipped to users has yet to be built.

That is why uranium promises to be the among the most rewarding investment categories over the next 20 years.  Don’t wait to get aboard, since share prices are likely to launch anew when it appears Germany is about to take Thunberg’s advice.

When the Bearish Case Looks Too Good

Get AAPL right and you get the stock market right. That has been our mantra for years, and it has never failed us. Apple shares and the broad averages are unlikely to go their separate ways because so many portfolio managers regard the stock as they do their Patek Phillippe wristwatches: something to pass on to the next generation.  Even the Sage of Omaha, who reportedly moved back into AAPL in a big way recently, seems to have a jones for the company.

So what is AAPL saying now?  Fix your eyes on the chart above and it’s easy to imagine the steep, 25% rally since January reversing when it hits the trendline. That’s the way picture-perfect channels are supposed to work. The resistance will come in at around 167 this week, a daunting 16 points shy of early 2022’s summit at 183.

Suspect the Obvious

However, any time a chart speaks so clearly, alarm bells should go off. For what looks like a simple picture is often more devious and complex than a three-way showdown in a spaghetti western. Were it otherwise, every chartist would retire rich at 40.  So whenever we look at a graph that seems to spell everything out for us, realize that the stock is calculating how to screw everyone.  In this case there would appear to be three distinctly different possibilities: 1) the rally fails right here or perhaps somewhat above, giving way to the ruinous implosion of a $2.5 trillion company; 2) heedless buyers impale the trendline within the next month or so , launching AAPL into the firmament; or 3) the stock wanders in the desert for 40 years, or at least until no trader cares about the channel any longer.

A bullish outcome or even a lengthy period of indecision seem unlikely, given that pricey iPhones are staring down a possible global recession-or-worse. Even so, I’m leaning ever so slightly toward the insane-rally scenario for a couple of reasons, to wit: the channel that has reliably contained the stock’s swings for nearly 15 months has attracted too eager a following; and, buyers have been chomping on the bit, pushing AAPL to the upper line more than twice as quickly as they’ve allowed it to fall back to the lower.

Join the Crazies

Earlier, I explained here in great detail how AAPL’s rallies are driven more by manipulation and short-covering than by bullish buying. It is a sleazy game run by Wall Street con-artists who differ from carnies in that the former have more teeth and are graduates of Sloan or Wharton rather than the school of hard knocks. But we shouldn’t let the fact that the stock market is a criminally rigged game discourage us from trying to make money by betting the pass line. As for the mass psychosis that would be pushing AAPL and other institutional favorites to heights that lie beyond rationality, think of it, simply, as…opportunity. Don’t fight it, just go with the flow and leverage the illusion of good times while it lasts.

Is the U.S. in a Recession or Not?

Only on Wall Street is fake news celebrated with such shameless hubris as we’ve seen lately. In the last few weeks, flouting a torrent of lousy earnings reports, investors have gorged themselves on stocks.  This resurgence, doomed by recession and a grim outlook for earnings, was strongly supported by fake, or at least meaningless, employment data showing strong payroll growth. Never mind that most of the newly re-employed were waitresses, shoe store clerks and cruise-ship saxophonists who got laid off during the pandemic. Now they’ll be able to pay the rent again with their own money rather than with taxpayer handouts — a modest gain that economists, Biden and his remaining few stalwarts would herald as evidence of boom times. Let’s not dwell in the meantime on the fact that high-paying tech jobs have been shrinking at a disturbing rate — by 32,000 in just the last month.

None of this was even faintly on Biden’s mind, such as it is, when he served up a State of the Union address last week telling us why it is once again Morning in America. In reality, U.S. data alleging 3% GDP growth in the last two quarters conflicts sharply with widespread perceptions that the economy remains mired in a recession begun early last year. The eggheads are so deeply in denial about this that they have returned to laughable speculation about whether America can ‘avoid’ recession.

Signs of Decline

But no matter how many jobs are added, and however inflated the stock market and real estate become, the things that determine our standard of living will continue to erode or disappear, just as they’ve been doing since the 1970s. Who doubts, for one, that the day is coming when the last department store closes its doors, leaving us to do most of our non-grocery shopping either at discount warehouses or on Amazon? While the price may seem right, the decline in services and amenities in the retail sector parallels the appalling transformation of air travel from a pleasurable experience into an ordeal. And we all know the sad story of customer support, whether in stores or on the phone: it barely exists any longer. How many years must ‘unusually high call volume’ persist before a company augments its support staff?  Answer: You already know the answer.

There are unfortunately some far more significant instances of decline in our standard of living, chief among them the necessity of two-income households. This was sold as a victory for feminism, but the very steep price we have paid is two generations of children who got short-changed on parenting, Even with the tragic sacrifice this implies, millions of Americans must still hock their homes to put their kids through college. Digital wizardry, consumer gizmos, exotic vacation packages, luxury-car leases and computer-designed golf clubs that can add 30 yards to a duffer’s drive may have distracted us from the disappearance of the good life, but there is no hiding it.

Fare Thee Well, Zappos

Amazon rubbed our faces in it last week with layoffs at its Zappos subsidiary. The online shoe discounter was among the most customer-friendly retailers online or off, and its founder, the late Tony Hsieh, was obsessed with providing a high level of customer service that has all but vanished from the land. Amazon laid off more than 300 Zappos employees — about 20% of the Las Vegas-based company’s workforce — charting a path for Zappos that will likely end conversations between customers and human support.

Are we in a recession? Call it whatever you want, but the economy is in a bad way, powered by consumer borrowing that is unsustainable. Still worse is that it is backstopped by Baby Boomer ‘wealth’ that is dwarfed by Social Security, Medicare and public pension liabilities that continue to pile up beyond reckoning.

Consumer Stimulus the Easy Way

Treat the stock market as you would a sleazy carnival game and you hold the key to accurately predicting its behavior. Take AAPL, for instance. We should have known that permabears were being set up for a fleecing when an always-complicit news media worked slavishly to stoke anticipation of horrendous Q4 earnings. Apple certainly didn’t disappoint in that regard when the company on Thursday reported its first year-over-year sales decline since 2019.

Such announcements are usually made after the close, enabling the thieves who manipulate stock prices for a living to work their magic. As they have done countless times in the past, they pulled their bids in after-hours trading following Apple’s grim announcement. This induced widows and pensioners to vomit Apple shares at distress prices five percent below where they’d traded on the close.

QE Mythology

With sellers utterly spent, DaBoyz were easily able to short-squeeze the stock back up to the intraday high within hours. The rigged ups and downs that made this ruse work are shown in this chart. From that point forward, their clown-dunking antics were on autopilot. As the stock relapsed in the wee hours, they covered shorts laid out at Thursday evening’s secondary peak. Sellers didn’t realize how badly they’d been had until around 5 a.m., when AAPL finished basing on near-zero volume and launched into an 8% rally, from 145 to 157, before the regular session began.

QE mythology aside, this is how the Fed effectively injects large sums of instantly spendable money into the economy. With credit stimulus there will always be a lag between falling interest rates and their intended effect on consumer spending. But gift investors/consumers with an 8% rally in the world’s biggest-cap stock on a Friday afternoon and you have spiked the wealth effect with methamphetamine. By the time you read this, many of the day’s big winners will have visited their local yacht showrooms, while others will have blown $1,000 on beluga, foie gras terrine and truffled Goujonettes at Daniel. A few months down the road, this orgy will allow The Guvmint to report Q1 “growth” at a time when the economy was visibly imploding, led by big layoffs at some of the largest companies in the world.

Who Needs Bulls?

Keep in mind than an 8% rally in a $2.5 trillion stock is worth $200 billion, equal to six weeks’ GDP for Israel, Ireland or Norway. Wall Street can churn out sums of that magnitude for days on end — effortlessly and in just a few hours, even without help from bullish investors. That’s because the gaps created on the charts by short-covering leaps define places were little actual money has changed hands. Moreover, bear rallies don’t need “good numbers” to go ballistic. In fact, the opposite is true: The more despairing the earnings outlook, the easier it is for DaBoyz to trigger off  short-covering rallies that can seem grotesquely illogical. This is mass folly in a seemingly benign form, but look out below when the psychosis has run its course.

It could be a few weeks or longer before that happens, since AAPL has an open path up to 168 from a current 154 before it hits any obvious technical impediments. There’s a downward sloping trendline that comes in at that price between now and mid-February. If the rally from the January low at 124 were to reach the trendline, it will have added around $720 billion to the U.S. economy. To put that number in perspective, it is only $100 billion less than the U.S. Defense Department spent in 2022. Since most of the stock’s rise could be attributed to short-squeeze leaps where relatively few shares or money changes hands, you can see how much easier it is for AAPL to grow the U.S. economy than for the Fed to do it by easing credit.

Ready for Your Dollars to Be Canceled?

[This week’s commentary was written by David Isham, a real estate investor from Northern California who has subscribed to Rick’s Picks since its inception more than 20 years ago. RA ]

With the ongoing financial turmoil and the potential start of another world war, gold is behaving as we would expect, showing exceptional strength. Although we are nowhere near the top as open interest is still low, we still must be on the lookout for a short-term top. The gold bull has traditionally carried as few riders higher as possible, and I suspect this time will not be any different. Rick has identified targets above $2,000, and there are two peaks at $2078 where there will be plenty of buy stops for the algos to run and establish short positions.

If they do run the buy-stops, they would then look to attack sell-stops under $1,600 so that they could cover profitably and get long again. A long-term Fibonacci fan (aka ‘speed resistance lines’) with a red 2/3 line has acted as both resistance and support since this bull market started in 2001 and would be a likely target on the downside. Such a dramatic move would also set up a slingshot move to the upside. If we do get one more, dramatic move down I would also expect gold stocks to hold up well relative to physical. My strategy is to accumulate gold and silver mining stocks and not try to time buying and selling my core positions, since I could get left behind if I am wrong about a big drop. However, any large move down would be an opportunity to add to my positions.

A Golden Slingshot

Martin Armstrong does not think the US dollar will last beyond 2028. It has the distinction of being the only currency that has never been canceled, meaning if you have a greenback from 1861 it is still legal tender. In a currency reset, all liabilities will be left in the old currency so that the government can print away this debt without affecting the economy. Their liabilities in the new currency would then be wiped out, allowing a ‘fresh’ start.

As an example of what a monetary reset might look like, the government might convert your cash savings into government bonds so that if you have $100,000 in savings, the bank would allow you to convert $20,000 to Central Bank Digital Currency (CBDC) and the remaining $80,000 into government bonds that could not be sold and would continue to drop in value.

Think this is crazy talk? It is exactly what was done in Argentina, where 80% of people’s life savings were converted to the ‘Corralito’ bonds that ended up being worthless. The word Corralito translates to ‘corral’, implying your bonds would be locked up and unable to circulate. If we are lucky our mortgages would still be denominated in depreciating dollars, which might ultimately be good for the little guy once the dust settles.

Diversify into Hard Assets

It’s hard to say who the winners and losers will be when the dollar is finally canceled, so the best approach is to minimize one’s exposure to bonds and diversify into hard assets such as precious metals, real estate, tools, razor blades and anything else that will have tangible value. In a monetary crisis, we are all going to lose, but how badly depends on what you do now to prepare for the crisis.

First Majestic Silver [NYSE: AG], whose chart is shown below, has a textbook, massive rising triangle that measures to $255 CDN. We could conceivably see that target achieved sooner rather than later.

Thin News Begets Thick Craziness

The chart is meant to put Friday’s giddy short-squeeze in perspective. If you are a bull and feeling a little discouraged by what you see, that is what I had intended. What better time to rack bears than in the final hours of a week that was more comic relief than hard news? Biden’s docugate was outed entertainingly by Tucker Carlson as a not particularly sinister plot by ‘Permanent Washington’ to make certain that the thieving, senile old coot doesn’t run again. It also has the beauty of allowing many Democrats and even a few Republicans to evade discussion of far more serious crimes that would implicate them all in shadier misdeeds than misplacing classified documents. In this temporary climate of political unseriousness, the S&P 500 was aggressively stoked to Mau-Mau bears, lest they become cocksure about the extremely dim prospect of new all-time highs with recession-or-worse stalking the U.S. and global economies.

Eggheads in Denial

Incredibly, the eggheads, including a few Nobelists, remain in denial that a U.S. recession has even begun. The stock market is not so stupid and may even have begun to recognize that lower inflation could be leading to an economically fatal debt deflation.  How else to explain the headless-chicken feints in both directions on news that prices for some things are coming down, if much more slowly than they rose?  Like the keister bandits who control bitcoin’s price, the svengalis of Battle Creek have seized on markets numbed by chaos to jack cereal prices six ways from Sunday. For instance, the 16-ounce box of Cheerios that once sold for $4.70 is now a 14-ounce box for $6.99. If you think the trend has gone far enough, be careful what you wish for, since, in the unimaginably hard times that may lie ahead, we could get free cereal dispensed one cup at a time from trucks operated by the Federal Government. [Big job cuts in Silicon Valley and elsewhere suggest the U.S. recession will continue to deepen, presumably until even Biden and some widely quoted eggheads admit we’re in one. Click here for my latest interview on this topic with Howe Street’s Jim Goddard. RA]

Congress Outperformed S&P 500 in 2022

The headline explains why the voracious bounders on Capitol Hill are willing to spend so much time, money and effort getting re-elected. For they are not just investment insiders, they are recidivist sponsors of legislation that directly benefits their stock portfolios. It is quite a racket, and whatever laws exist to prevent them from getting rich serving corporate lobbyists above all, those laws obviously are not working.  If you’re interested in the sordid details behind their headline-worthy investment success, a website called UnusualWhales publishes an annual report filled with titillating information. “By analyzing publicly accessible financial disclosures,” the Whale’s authors proclaim, “we found that a quarter of Congress actively traded up to $788M in various assets through 12,700+ transactions in 2022. Although this matches the number of transactions in 2021, the total value has dropped.”

I was unaware of Unusual Whales’ efforts to shine a light on our nation’s political cockroaches until my brother, Allen, sent me a link to their site. “For me, reading the headline Congress Outperforms S&P in 2022 was all the clickbait I needed,” he wrote. “While it’s my habit to look for the best in people, I eagerly make an exception for all politicians. The loftier their position, the greater my skepticism. To temper my deep disdain for them, I try to remember the old adage that it’s only 98% of them that give the rest a bad name.

Their Favorite Plays 

“Admittedly,’ he continued, “the report is too long for me to read at one sitting — think Tolstoy — and although I don’t think it will provide any revelations, it makes for fascinating reading nonetheless.  Imbibe just the opening paragraphs and you’ll see how the greed of Republicans and Democrats run on somewhat different tracks.  The top sectors with the highest stock investments were: Technology Services, Electronic Technology, Finance, Consumer Services, Health Technology for Democrats; and Technology Services, Industrial Services, Miscellaneous, Finance, Electronic Technology for Republicans.”

Our public servants evidently have quite a smorgasbord to pick from. And although they float sham legislation now and then purporting to ban stock trading by D.C. lawmakers, the practice still flourishes.  Said Rep. Dan Crenshaw in response to the Unusual Whales’ 2022 report: Without trading, “you have no way to better yourself” as a Congressperson. Politics surely opens doors to opportunity, but sometimes it seems as though that’s the main reason men and women run for office in the first place.