The Morning Line

Get Microsoft right, as I continue to remind you, and your forecast for the stock market can’t go far wrong. The tech giant is among the most valuable companies in the world, with extraordinary profit margins tied to an 80% market share in operating systems. The subscription-based revenue model the company has put in place over the last decade is built to withstand a severe economic downturn. And as long as the shares continue to make new highs regularly, it’s safe to assume the stock market will, too.  The trouble is, MSFT hasn’t made a new high in six months, raising the possibility it has entered a bear market. This would have occurred last summer when shares topped at 468 on July 5.  The steep plunge that followed over the next 30 days took the stock down $83, or about 18%. That’s two percentage points shy of a statistical bear market, although investors who have stuck by Microsoft – i.e., every portfolio manager on earth — would find scant consolation in this statistic.

Still, most of them probably have little doubt that new all-time highs await, and they could be right. But a chart stretching back to 2023 suggests persistent distribution, along with ponderous supply that has prevented a run-up to new heights. The chart would take on a rosier look, however, if the stock were to pop just 22 points, or 5%, surpassing an important peak at 450 recorded less than a month ago. MSFT could easily do that in a week, and we should not bet heavily against it.

A second, nettlesome concern for bears who have already placed their bets is the feisty performance of Bitcoin. Like Microsoft, it appeared to have made a very important top a month ago when it hit a record 108,334. The rally came within 0.1% of a compelling Hidden Pivot target, and that’s why I was willing to lay 3-to-2 odds that the top was in.  However, the merciless short-squeeze that powered Friday’s wilding spree was cause for doubt. Although it topped slightly above a technical resistance that I call a ‘voodoo’ number, Bitcoin would need to start the week with a 3349-point dive to suggest bears are about to get a breather.

But they needn’t throw in the towel if Bitcoin explodes to new record highs in the days ahead, especially if MSFT seems reluctant to join the party. That could be considered a bearish divergence, although not the kind you’re likely to find described in a textbook. There are too many other signs that the broad averages have topped, including breadth numbers that have turned ugly. So be on your guard against Bitcoin going it alone for the bull’s last hurrah. That would keep bulls bullish, at least for a while, setting the hook for a new crop of speculators who have never experienced a bear market, let alone a take-no-prisoners killer like the one that’s coming.

Who Will Insure Us Against the Next Disaster?

Although the major indices were down just 1.6% on Friday, it felt like a big day. Everything that matters to the U.S. economy was moving the wrong way: stocks were falling across the board; interest rates and energy prices were climbing; dollars were growing dearer, especially for debtors; and gold, perhaps imagining a bevy of black swans, was stressed with fear, up as much as $60 intraday. Cumulative losses for the week totaled nearly 3%, adding to the feeling that the granddaddy of all bull markets is over.

I am taking this possibility seriously, in part because the S&Ps topped a month ago a hair above a 6136.25 Hidden Pivot target of mine that had been nearly five years in coming. Similarly, Bitcoin, the hophead that has been inspiring speculative excesses in all markets, apexed in mid-December within 0.1% of a $107,343 Hidden Pivot target first identified here when the price was $15,000 lower. If any chart provides a reason for hope, it would be Microsoft’s. Shares of the recession-proof software giant ended the week on a thin ledge, $3 above a key Hidden Pivot support at 415.57. A closing bar decisively beneath it would announce the almost certain start of a bear market. MSFT would be on its way down to at least 374.18 at that point, presumably the first wrenching drop into an unimaginable abyss.

Why This Time?

Why would this market top differ from the mostly minor ones that have occurred routinely over the last 16 years?  Mainly because it is happening with Southern California in flames. Ordinarily, we might expect investors to buy stocks aggressively, as they always do in the wake of natural disasters, since it will require enormous sums of capital investment to rebuild. This time, however, there is a palpable feeling that the money just isn’t there, especially for FETA handouts to tony precincts like Malibu and Pacific Palisades. And even if “we” could afford to restore what has been lost, insurers are not going to stick around for the next fire. Thus would California homeowners become self-insured against fire damage in the same way Florida homeowners already have against hurricane damage.

Premiums are already crushing homeowners in both places, so what will happen when Motherf**ker Nature strikes again?  If the U.S. steps in to cushion losses, Americans will finally understand that, where money is concerned, the Government is actually just…taxpayers. This epiphany will eventually overwhelm us when it extends to attempted bailouts of public pension funds. Illinois, where “politics” and “corruption” are time-honored synonyms, is all but certain to be the first state to go belly-up. When it happens and Gov. Pritzker turns up on Trump’s doorstep hat-in-hand, we will at last realize the limitations of the nanny state. The silver lining is that a radical political transformation is coming that will emphasize a candidate’s qualifications rather than his or her party affiliation. Considering what is coming when the bull market ends, we will need not mere competence to get us through extraordinarily hard times, but deep wisdom. Let’s hope we are able to recognize it if and when it is proffered.

*****

More Answers

To answer the question of who will insure us next time, here’s a link to a detailed commentary, “Is the World Becoming Uninsurable?” published moments ago by my friend Charles Hugh-Smith. And here’s another link to my recent interview with Howe Street‘s Jim Goddard. It is titled Have Stock Markets and Bitcoin Topped Out?

It’s Time to Tune Out Wall Street’s Siren Song

The party is over, or so says the chart above. It is a long-term picture of the E-Mini S&Ps, and it shows the futures rolling down after touching a 6136 target that has been nearly five years in coming. Actually, it has taken nearly 16 years to get there since the longest bull market in U.S. history began in March 2009. The economy was emerging from the devastation of the Great Financial Crash, ready to embark on a fresh cycle of foolishness that has put Americans much deeper in hock. The major stock indices have more than quadrupled since then, and anyone who has stayed fully invested in index futures or a few high-flying ‘lunatic stocks’ would have achieved long-term gains that no portfolio manager in decades past could have imagined.

My analysis has utilized a standard ABCD pattern to project the 6135.25 top.  However, it should not be expected to work precisely for two reasons. For one, it is a blended chart, with key highs and lows derived from many successive contract months. Although the coordinates are matched closely, the result is not seamless, and the ‘D’ target could therefore be off by as much as 10 to 15 points. For two, the pattern is so in-your-face obvious that every Tom, Dick and Harry who fancies himself a chartist would have spotted it more than a year ago and used it to ride the bull to the top.

Obvious, but Potent

Assuming they did, more than a few would have reversed their positions and gotten short at the recent peak. If so, we shouldn’t be surprised to see a short squeeze rip them a new orifice in the weeks ahead. The result would be a jagged top littered with the bodies of intrepid traders. Whatever happens, I strongly doubt that 6136 will be significantly exceeded before the bull market strokes out. Although the pattern is too obvious and its target too widely anticipated to produce a perfect climax on cue, the overall look of it is compelling enough to produce a major top.

So far, the pullback from the 6170 high has not breached any prior lows. However, if the weakness of the last four weeks were to take out early November’s 5724 low, that would generate the first bearish impulse leg we’ve seen on the weekly chart in three years. Still more troubling is that this will have occurred off a target sufficiently well defined to cap the bull market.  Permabulls in particular should take note of this and tune out the siren song of Wall Street’s mighty PR machine. It has never, ever contained a warning, and it will always be loudest at market tops.

My Predictions for 2025? You Don’t Want to Know.

I’m making no bold predictions for 2025, since getting it right in these way-too-interesting times is like trying to guess when a ticking time bomb will explode. When it does, the shrapnel will pop an economic bubble so pumped with folly, greed and hubris that only a Wall Street shill or a madman could believe the soft-landing story. Made-up statistics to support this fantasy are being peddled aggressively nonetheless by the likes of Bloomberg, The Wall Street Journal and a few other mainstream sources whose editors evidently are incapable of imagining what a hard landing might look like.

For starters, a commercial real estate market that has been imploding in slow motion for more than three years will collapse with the swiftness of a black hole, swallowing up a galaxy of underperforming assets in nanoseconds. Tens of trillions of dollars’ worth of imagined ‘wealth’ will be wiped from the global ledger by the tsunami that follows.  And yet, against this likelihood, Wall Street’s newspaper of record can still report with a straight face that some Manhattan landlords are starting to make money with office rentals. A recent article would have us believe the city’s property market may have bottomed. The unfortunate truth is that the relative handful of big companies that are signing leases rather than fleeing New York’s high taxes and rampant street crime have been moving into showcase buildings that represent only a minuscule fraction of rentable space.

Meth-Money

Bitcoin’s inevitable implosion could set an even bigger disaster in motion. The collapse will inflict long-lasting psychological damage on securities markets, but it will also purge an important source of meth-money from the financial shell game that sustains global GDP. The possibility that Bitcoin will fall from whatever peak it achieves above $100,000 to under $100 exists because it is mostly greedy fools too young to know the devastation of bear markets who have pushed valuations of something fundamentally worthless to insane levels. Anecdotal evidence of this comes from Florida women I’ve dated over the years. Every one of them had a son with a day job that paid low-to-mid six figures but who supplemented his income gambling on cryptos.

In earlier days, none of us knew a centi-millionaire, let alone someone who had made that kind of money overnight. Now, even kids are doing it, and frequently enough to turn the story viral. That’s where all the ray-rah, sis-boom-bah is coming from, and you can hardly blame avocado toast-eating, hard-seltzer-drinking, would-be titans of finance for believing that cryptocurrencies are the ticket to easy riches. The adults in the room are financiers themselves who know better. They doubtless find the spectacle entertaining, but also regard Bitcoin as a limitlessly expansible source of liquidity for a banking system powered chiefly by hot air. When the bubble pops, dreams of easy money will go down hard. If the severely depressed economy that results mutates into a state of barter, don’t count on digital money to replace hard cash for purchasing necessities. Of course, one’s digital wallet would become infinitely less useful if the power grid were to turn balky.

Last Week’s Plunge Was Worse than It Seemed

[The following analysis was contributed by my friend  Larry Amernick. His work has appeared here in the past, including excerpts from The Amernick Letter, which is no longer published. He is a former president of the Technical Securities Analysts Association of San Francisco.]

Last Wednesday’s brutal response to a mildly hawkish Federal Reserve announcement triggered two opposite market signals. First, the unusual nature of the sell-off in technical terms told us that the great secular bull market that began in 2009 is probably over. Second, the intense selling generated oversold readings that were bound to produce a short-covering rally, as they indeed have.

The stock market is always coming and going at the same time, depending on which time frame one is using to measure the trend. It is an irrational and sometimes fragile creature of human emotions, and that’s why it can be so difficult to predict. Nevertheless, let’s take a closer look, using the October 1987 Crash for comparison. It turns out the tape was actually more bearish this time, even though losses in percentage terms were nowhere near those of the earlier crash. In 1987, the McLellan Oscillator, which measures breadth, was a scary -110.14; on Wednesday, however, it registered an astounding -203.34. The advance/decline line differential was just as scary: -1921 in 1929 versus -3468 this time. The three-day exponential moving average was -1594.85 versus–2444.89.

3% Versus 22%

Why did the market drop a mere 3% on Wednesday, compared to 22% in 1987, even though tape action was arguably worse this time? Although many stocks fell, they did not collapse; they moved only a few percentage points lower. It was the astounding breadth readings that made the difference.  Call it a foretaste of what could come in January.

For good measure, I have applied a volume momentum indicator recently created by Buff Pelz Dormeier. I use a variation based on a 34-day Money Flow Index. In 1987, the indicator was close to being oversold, while last week’s reading was closer to an overbought peak. This discrepancy gave us to expect the short-term bounce that ended the week, with sellers spent.

Yield Curve ‘Normalizing’

My proprietary model turned negative in June for four consecutive weeks. Usually, the model issues one or two signals before a major market change occurs. But never have there been six signals in one year, as has just occurred. What was missing earlier was that the yield curve was inverted and had been that way for nearly two years, the longest inversion ever. Since then, it has begun to normalize, with longer-term rates slowly rising above shorter-term. (See graph above, from WolfStreet.com.) The process has further to go before the spreads widen to historical norms.  However, markets have a tendency to fall apart not when the yield curve inverts, but when it starts returning to normal. That is why I have interpreted my data somewhat more bearishly than I might have otherwise.

And if you’re superstitious and believe in curses, there is this headline from the latest edition of Barron’s: “Stocks Could Gain Another 20% in 2025. Embrace the Bubble”. Contrary indicators don’t get better than that.  Famed market technician Martin Zweig was the first to write about this phenomenon years ago. He argued that Barron’s cover stories at market extremes were contrary indicators.  We are hardly going out on a limb to expect a short-covering rally this week, possibly into next, followed by a painful drop toward the beginning of 2025.

The Herd Is Even More Fearless than in 1929

Skittish about the stock market’s manic climb?  Consider moving some of your savings into T-bills, which are currently yielding around 4.25%. You could do worse. Some of my friends are reluctant to take e ven a little money off the table because 2024 was such an incredible year for them.  One is a retired lawyer who racked up a nearly $500,000 gain in Nvidia.  She sold enough shares to buy a condo in Palm Beach, but her portfolio is otherwise unchanged and showing a return of about 40% for the year. She and her financial advisor are confident her portfolio will do equally well next year.

Both of my siblings had a similar experience, but they have since moved most of their nest eggs into Treasury bonds and bills.  It has been an extraordinary year for them, and for millions of Baby Boomers who owned stocks, real estate or both. Who could blame them for thinking that the bull market begun in 2009 might have another year or two left in it?

On the other hand, valuations are at their highest levels ever, and a real estate downturn seems all but certain because mortgage rates are stuck at levels too high to attract first-time buyers. And few would deny the stock market is out of its mind, a beast on steroids; we all sense this in our bones. Consider the way speculators have shrugged off ominous tariff news. Trump has threatened our two biggest trading partners, Mexico and Canada, with protectionist levies that would punish U.S. auto manufacturers in particular and cause grocery prices to surge anew. The President-elect also seems hell-bent on implementing immigration restrictions that would tighten the supply of workers, particularly for unskilled jobs.

He’s Bluffing, Right?

Toward the end of the Roaring Twenties, when Congress was debating passage of the Smoot-Hawley Tariff Act of 1930, investors grew increasingly obsessed with headlines concerning the bill’s odds of becoming law.  When it appeared to pick up support on Capitol Hill, stocks would fall; but when the protectionists seemed to lose ground, shares would rise. This time around, facing tariff measures that make Smoot-Hawley look benign in comparison, investors remain not merely unconcerned, but giddy. Stocks rise on most days regardless of tariff news and despite the strident efforts of economists and editorialists to convince us that Trump is about to goad the world into a trade war. Investors must think he’s bluffing, and perhaps he is. If not, don’t be surprised to see the broad averages, along with Bitcoin, get nuked a few months after he takes office.

Cut $2 Trillion from the U.S. Budget…or What?

Let’s hope Musk and Ramaswamy have been paying close attention to David Stockman’s ten-part series on how to cut the U.S. budget before America spends its way into bankruptcy. Stockman was Reagan’s budget director in 1981-85 and eminently qualified to spell out the tough reforms needed to force the U.S. to live within its means. He is no fan of Trump, to put it mildly, but he sees the Musk/Ramaswamy ‘DOGE’ project as America’s last chance to get spending under control. Musk famously asserted during the campaign that he could cut $2 trillion annually from a total federal budget of around $6 trillion. Although we’ve come to expect big things and even the impossible from Musk, in this case, even with the intrepid Ramaswamy aboard, DOGE may have bitten off more than it can chew.

Ironically, it is Stockman’s long, detailed list of cuts that makes Musk’s goal seem farfetched if not impossible. Stockton admits that eliminating nearly every U.S. department and agency you can think of, and laying off more than half-a-million government employees at the outset, would scarcely dent deficit spending that’s been pushing the national debt toward $40 trillion at a rate of more than $3 trillion per year. The list of 16 agencies Trump should axe as soon as he takes office in January includes the FBI, DEA, BATF, NHTSA, Legal Services Corp. and the Department of Education.  Additionally, says Stockman, DOGE should shoot for 50% staff reductions in these fat cows: the SEC (2,250 workers, for savings of $360 million); FCC (750 workers, for savings of $120 million: FAA (22,500 workers, for savings of $3.6 billion); IRS (41,500 workers, for savings of $6.64 billion); National Labor Relations Board (800 workers, for savings of $130 million); Office of Personnel Management (1,250 staff, for savings of $314 million); Environmental Protection Agency (8,500 staff, for savings of $1.36 billion); NASA (9,000 staff, for savings of $1.4 billion); and the General Services Administration (6,500 staff, for savings of $1.04 billion).

Why Bother?

Total savings would amount to $264 billion, or just 0.33% of the $8.0 trillion of Federal spending projected by the Congressional Budget Office for 2029, DOGE’s target year. So why bother, especially when the political fallout from these relatively ‘modest’ cuts could trigger all-out war on Capitol Hill? Here Stockman states the obvious: If we can’t make it through a first round of serious reductions, America is doomed financially and economically.

Doubters may not have much time to dither about whether this is true, since even under the best circumstances, Medicare and Social Security will go belly-up long before the fiscally nettlesome Baby Boomers are safely in their graves. If you believe otherwise, you are implicitly arguing that Millennials and Gen-Xers who are living in their parents’ basements will somehow be able to pay the doctor bills of Boomers who live into their 80s or 90s, and to keep sending them inflation-adjusted Social Security checks every month. Both of these gargantuan programs are propped up precariously by asset inflation that will reverse when the stock market’s long bull-run ends.  In such circumstances, the budget catastrophe Stockman says is all but inevitable could be upon us not in a few years, but in mere months or even weeks.

Let’s Execute a Few Internet Scammers!

Have you heard from “Cleo Kenmille” or “Caroline Johnson”? If not, consider yourself fortunate. Those are pseudonyms used by a crew of shitbags who work out of bucket shops that lie beyond the reach of international law. Their job is to steal money from you or anyone else who is familiar with PayPal, the online banker. Paypal itself is unconnected to the scam, although their familiar logo is used to entice the unwary (see above). The header on the scammer’s email — “A small reminder from Cleo Kenmille” — should arouse the suspicion of anyone who is even slightly wised-up about phishing scams. Since when did banks start sending out emails featuring in the headline the specific name of an individual to whom you or I supposedly owe money? This email did, though, explicitly identifying “Cleo Kenmille” as the aggrieved party. The implicit message is: “Pay her now!”

Or…what? Although that question begs a stupid answer, someone might absent-mindedly fall for this grift, since the email cautions the recipient to call 888 232-0407 if he or she doesn’t recognize Cleo’s name. A friend of mine dialed the number and was connected to a surly man with an Indian accent. He somehow persuaded my friend to download an app that promised to “get this mess straightened out”. Next thing you know, she was logged onto a phony PayPal site that listed several bitcoin transactions, including one for $98,000. Nervous and distressed, she hung up. But not before she’d given the thieves enough information to enable them to generate a very real message in her Charles Schwab account concerning a “pending” $130,000 wire transfer of her savings to a bank in Dubai. My friend immediately instructed Schwab to lock the account, changed a bunch of passwords, then waited for the other shoe to drop. It didn’t, presumably because the scammers would have needed one more phone conversation to trick her into releasing the funds.

Global Crime Wave

If you are a frequent internet user, you’ll alreaady know that the World Wide Web has helped spawn a global crime wave so pervasive and persistent that one might suspect there are many millions of scammers in our midst. Search the retail sector, for one, and you’ll be challenged to find more than a handful of categories that are not dominated by crooks, cheats and liars. Craig’s List seems to attract the worst of them, including actual rapists, robbers and murderers. Online dating services are filled with phony profiles, and even Amazon is wholeheartedly on board, lending their coveted ‘Amazon’s Choice’ endorsement to shady companies that sell shoddy merchandise made in China under a score of company names. The makers will typically offer a 30-day guarantee, which of course is when Amazon’s guarantee ends. I discovered after ordering a high-intensity flashlight that stopped working after 30 days that Amazon didn’t even have contact information for the company they had rated so highly.

It is nearly impossible to catch internet scammers, let alone bring them to justice. I offered investigative help to the local police when a scammer advertised a South Florida apartment with a pay-in-advance deal that sounded too good to be true. This was a potential $14,000 con, but the chief of detectives was too busy to be bothered.

The only way to mitigate the 24/7 orgy of fraud on the Internet is to arrest, try and execute a few dozen perps. I’m convinced there would be strong bipartisan support for this — not just among voters, but on Capitol Hill. Track down a slew of these sociopaths and sentence them to die in the electric chair. When enough of them have taken the hot squat, their shitbag colleagues will get the message. The world will be a better place without them.

Bitcoin Leaps Above the Hubbub

The headline on last week’s commentary asked whether it might be morning in America, but the left’s combative reaction to the drubbing they received on November 5 suggests we could be closer to high noon. We may know soon, since the forces of darkness are going full-tilt against Matt Gaetz, Trump’s choice for Attorney General.  Wikipedia, while discreetly neglecting to mention Hitler, trotted out a laundry list of dubious citations implying that Gaetz, a Florida Congressman, is a right-wing crazy, sex pervert and a deadbeat. In their dreams, perhaps, for he is actually an avenging angel, intent on rooting out every rat and cockroach in the Justice Department and ending the U.S. Government’s increasingly common practice of arresting and imprisoning people because of their conservative political views.

It would look suspicious if Deep State were to take a potshot at Gaetz after failing twice to bring down Mr. Trump with bullets.  Whatever their plan, they’ll have the pathetically diminished but as-yet-unhumbled voice of the New York P.O.S. Times to cheer them on. Here’s the editorial page with a delusional take on the election that makes clear why the Gray Lady might not even be around in ten years:  “Many Democrats were considering how to navigate a dark future, with the party unable to stop Mr. Trump from carrying out a right-wing transformation of American government. Others turned inward, searching for why the nation rejected them. They spoke about misinformation and the struggle to communicate the party’s vision in a diminished news environment inundated with right-wing propaganda.”

 Humble Beginnings

On Wall Street, Trumpmania experienced a mild setback last week. However, because investors are too revved up to have second thoughts about anything, the feeble decline over five consecutive days should be attributed to the pull of gravity. Stocks were due for a correction, and they obliged as innocuously as possible. If there was anything to worry about, it was Bitcoin’s deranged leap to a record 93,495. Speculators holding out for more — perhaps much more ($1 million?) — shouldn’t let greed cloud their judgment. My technical forecast, viewable on the Rick’s Picks home page (see below), calls for a potentially important top at either 107,670 or 119,253.  Not too shabby, considering this still-valueless form of supposed money traded freely for a dime before engaging the proletarian mind in mid-2011.