Each of us seeks our own version of the truth when we turn on the news. Tucker Carlson, one of the most courageous and honest journalists of this era, is my choice. He has excoriated Democrats and Republicans alike for their moral cowardice in coddling torch mobs. I can’t get my liberal friends to watch him, however, probably for the same reasons they could never get me to watch Rachel Maddow. It’s true that Carlson used to give snarky interviews to political radicals whom he never took seriously. But he takes them very seriously now because of the grave threat they have come to pose to individual freedom and to the American experiment itself. I do wonder sometimes what Maddow has been saying about Biden’s supposedly big lead in the polls. This is about as unbelievable as headlines get any more, although it hasn’t stopped Fox News and its chief political analyst, Karl Rove, from taking the surveys seriously. The network’s mostly conservative viewers scoff at such twaddle, having learned their lesson when Hillary’s widely predicted victory in 2016 failed to materialize. This time the polls are wrong simply because the news media and the popular culture have bullied millions of Trump voters into silence. There are many quiet converts going uncounted as well. They include not only a significant number of Jews I know who a year ago could not have imagined themselves ever voting for a Republican, but also some well-closeted apostates in Boulder and San Francisco, where I lived, respectively, for 19 and 22 years. Civil War Coming? More unbelievable than Biden’s strong poll numbers are unemployment data that suggest the country is in a strong economic recovery. Trump never tires of telling us how super-amazingly strong it is, but many if not most Americans probably reject this narrative because they can see the falsehood of it in their own lives. They recognize how their own spending habits have changed and how very long it could take before they go to a concert or baseball game, board a cruise ship or an airplane, dine indoors at a restaurant, or travel via subway or bus. A handful of retailers may be doing brisk business, but most will not survive even a 10% hit to margins. Airlines are particularly vulnerable because their profits come from squeezing passengers like sardines. Retailers aside, the big question is how long it will take before the Republic is in an actual state of civil war. The shooting is likely to begin when Marxist rowdies try to take down the wrong statue in the wrong town. Boise, Idaho, maybe, or Springfield in any of a dozen states. Some of these misguided ‘youths’ will get shot, and the war will begin. It will end quickly, fortunately, because the red team’s militia possesses overwhelming firepower and is ready to use it. Fear Favors Trump Concerning the desecration of public monuments, every decent American should be more than merely appalled. It is one thing for rioters to burn stores in a fit of rage; however, the sight of these miscreants toppling statues of Washington, Lincoln, Jefferson and Teddy Roosevelt is far more frightening because it reveals that their goal, and even that of peaceful protesters, has less to do with black lives than with gaining political control over what we are allowed say, to do and even to think. Do enough Americans fear this to put Trump over the top in November? The answer, probably, is yes. It stretches credulity to believe voters will turn to the Democrats to fix urban blight that they themselves have brought on themselves over the past 50 years. Most big cities have either a black mayor, a black police chief or both. Perhaps four more years of Trump will give voters ample time to face up to the fact that America’s biggest problem is not racism, but rather indigo-blue governance that favors teachers’ unions over students, multi-layered, fat-cat bureaucrats over taxpayers, and encampments of drug abusers over homeowners. In the meantime we ought not get our hopes too high that political tensions will subside. More likely is that they will only worsen between now and November, possibly degenerating into physical violence on a wider scale than we saw in June.
I’ve been wondering what might provide the catalyst to push the Dow above 30,000, and this may be it, from Bloomberg: “A strain of virus spreading in Chinese pigs has shown it can also infect humans, with researchers suggesting that another pathogen with pandemic potential waits in the wings behind Covid-19.” There’s no telling how much stimulus we’d see if a new virus takes wing before we’ve dealt with Covid-19. For starters, the Fed might bring interest rates down to, oh, minus 3 or 4 percent. Bank loan officers would be giving away toasters and Cuisinarts at that point just to have us take thick stacks of $100 bills off their hands. The credit blowout could be coupled with a moratorium on taxes for 2020 and beyond, and the $600 unemployment bonus could be doubled or tripled. Checks would go out weekly, and not just for six months but indefinitely. Black Rock could step up its purchase of corporate bonds for The Government’s portfolio to include debt issued by strip malls, restaurants, movie theaters, bait & tackle shops, rugby clubs and accredited PTA organizations. ‘Wall Street for Pelosi!’ The stimulus we’ve tried so far has been pretty stingy, actually. We should follow Pelosi’s lead on this, because she is the Democrat most capable of attracting the support Congress will require to give the economy the shot in the arm it so desperately needs. She is the true Wall Street candidate for 2020, even if few realize it yet. This would also be a terrific opportunity to provide an extra dose of “special” stimulus that millions of homeowners will surely appreciate: new roofs for everyone! Insurers have grown increasingly stingy with hail-damage and hurricane claims at a time when the number of homeowners needing new roofs has soared. The U.S. Army could train roofers so that many of the 30 million who are unemployed will not have to sit on their asses all day, wondering if they should join the rioters, looters and statue-topplers. If that doesn’t make America great again, what would?
V-shape mania appears to be tapering off. Years from now, market historians will come to regard the spectacular rally since late March as a case study in mass psychosis. The explosive resurgence of bulls is not only unsupported by economic reality, it flouts common sense in ways that only extraordinary popular delusions can. There is the implicit notion, for one, that just a handful of supposedly bulletproof multinationals — Apple, Facebook, Microsoft, Amazon and Google — can carry the global economy on their backs, and that this justifies ever-expanding multiples for their shares. Even before the pandemic hit, Apple, the biggest and most popular holding in institutional portfolios, had its problems. Most of the firm’s revenues come from the sale of iPhone, a dense handful of electronic wizardry with a high price tag that has left Apple acutely vulnerable to economic downturns. If cult buyers stretch the useful life of their phones by just a couple of years, as seems likely in the severe global downturn recently begun, this will have an outsize impact on the company’s revenues. Cupertino’s best and brightest have been hard-pressed for a decade to come up with disruptive alternatives. Earlier this year, Apple announced with considerable fanfare that it was diversifying into entertainment, arguably the least innovative business they could have chosen. Covid-19 has brought content production to a halt, but there were problems to begin with because the field was already glutted with aggressive, well-capitalized players. Investors have ignored the negatives, and it’s hard to find even a single analyst with a bad word to say about Apple. But do they or any one else honestly believe the company’s shares deserve to be trading 10% above the record highs achieved before the global economy tanked? Middle Class ‘Tapped Out’ Another reality check for V-shaped hysteria is that stimulus dollars are not exactly reverberating with success. Companies are hoarding cash for the even harder times they believe lie ahead, and consumers are doing the same, many of them using their Trump feel-good checks to effectively prop up landlords for an extra month or two. The stimulus effect has been muted, except on Wall Street, and no one other than Trump, Kudlow and a few other cheerleaders for the status quo could believe that more stimulus checks will help produce sustainable growth. Meanwhile, most economists and pundits continue to talk about the supposed threat of inflation. In reality, rampant inflation remains as likely as a Martian invasion. Financial assets may be inflating, and grocery prices as well. But inflation’s three most powerful engines — healthcare, higher education and government at all levels — have finally hit a wall. Middle class Americans are simply too tapped out to cough up more for any of those things. Add in debt service on the ginned-up trillions that have been shot at unproductive stimulus and you begin to see why it has become mathematically impossible for the U.S. economy to grow its way out of the hole. Unfortunately for us all, this fact has in no way diminished the crackpot idea that animates all politics — i.e., that “the Government” can somehow afford things that we as individuals cannot. Nor has it yet coaxed forth the inevitable epiphany that the government that would bail us out is ultimately just the taxpayers themselves. In this election season, such delusions are intensifying and will reach critical mass if Democrats take control of the Senate and/or the White House. Just One Whiff A bracing whiff of this possibility is about to send the stock market into a dive even steeper than the one that occurred earlier this year. The crash will extinguish the banksters’ prayerful hopes for inflation, energizing the Godzilla of deflators: a quadrillion dollar derivatives market leveraged to at least ten times the size of global trade in real goods and services. World output is imploding under the weight of the pandemic, disrupting payments all along the supply chain. The disruptions are going to destabilize the financial system at some point, probably sooner rather than later, overwhelming whatever puny trillions the central banks can throw at the disaster. Excess capacity is yet another deflationary black hole waiting to implode, and not just in manufacturing. Massive write-downs are coming in other sectors including, in ascending order of magnitude, movie theaters, strip malls, restaurants, offices, large shopping malls, airports and carriers, universities, public transit systems and, ultimately, the very infrastructure of America’s largest cities. A Question for Inflationists Make no mistake, hyperinflation is coming eventually. It is the only way, other than via a declaration of bankruptcy, that the U.S. Government can ‘repay’ debts grown far too large to service, let alone retire, with honest money. But the blowout won’t come in time to save us from the crushing burden of private debts we’ve piled up since the 1970s. Anyone predicting that hyperinflation is likely to happen before deflation must explain how mortgage debts will be settled after the housing market collapses. Mortgages are the biggest piece of what Americans owe, and it is preposterous to think lenders will accept a bunch of freshly printed $100,000 bills as fair payment. The path from here is not only obvious, it is unavoidable: all mortgages will eventually be rewritten as lease agreements. The shift has already occurred to a significant extent with the massive move of private equity into residential real estate. The nationwide buy-up of homes-to-rent recently accounted for fully 10 percent of the market. Investors acquired or built millions of houses at the top of the market in order to rent them to tenants who manifestly cannot afford to buy them. This is not exactly a recipe for an inflationary spiral, especially when the bleak job market has already turned millions of renters into deadbeats. Unsurprisingly, shares in the biggest home-rental companies have gone bonkers, reflecting investors’ apparent certitude that a mass migration to the suburbs, if and when it comes, will have no downside for financiers.
If you thought the resurgence of Covid-19 in the U.S. would put a damper on Wall Street’s orgy, you’d have been wrong. Stocks continued their heedless ascent on Thursday even though the pandemic is close to extinguishing a fragile economic recovery that had barely gotten off the ground. The Dow rose 300 points, demonstrating yet again that champions of the V-shaped recovery still hold sway in the markets. Two consecutive down days seems to be as bad as it gets any more, regardless of the headlines. This observation in itself is reason for extra caution, since it implies that we’ve all gotten a little too used to buying the dip on day three. One of these times, probably soon, that dip is going to turn into an avalanche that will last for weeks.
It was a real shocker to see stocks get drubbed merely because of a nasty resurgence in the coronavirus. V-shaped mania was overdue for a breather, though, and we should be prepared for perhaps another day or two of selling. But given that there is a quite bullish target outstanding in AAPL, the most institutionally beloved stock in history, don’t be surprised if bulls are raring to go next week or even earlier when they realize that the latest outbreak will not make the coming Second Great Depression any deeper than it was already going to be. That kind of thinking is guaranteed to put a smile on Wall Street’s face and a song in its obsidian heart — this song perhaps.
AAPL has blown past a longstanding rally target at 370.15, implying it is bound for yet another at 385.48 that lies a further 5.4% above. Because the stock is almost certain to get there, the broad averages can be expected to move higher with it. This seems hard to believe, given the grim turn of pandemic news. Fauci sees no slowing of Covid-9 this summer and downplayed the idea that hot weather can affect it. That is turning out to be true in hot, muggy Florida, which in the last few days has shot up to the top of U.S. trouble spots. Businesses struggling to survive until ‘something’ changes for the better are going to have a rough time getting though the summer. However, if AAPL continues to lead the charge on Wall Street as it has been doing for years, it would mean that none of the foregoing will even remotely faze stock-market bulls.
Violence has erupted in Seattle, Washington D.C. and some other cities Monday night, a development that is likely to fuel a continuation of the rally that kicked off with a short-squeeze late Sunday. There were other factors present that Wall Street seems to love, include a resurgence of Covid-19 nationally and a some dreadful news concerning the disease itself. It would seem that many of the newly infected are young people who have not shown symptoms. They are turning up at hospital emergency rooms in droves nonetheless, leaving care facilities in a quandary about whether to send them home. This trend could all but negate the value of contact tracing, since it will open hospital doors to millions of hypochondriacs. Investors might need a little more bad news to jolt stocks into a yet another bullish frenzy, but this could come as early as this week if the rioters and looters return in force. The move to de-fund police departments may have gained a step with news of the gang-related shooting deaths of two three-year-olds who lived, respectively, in Baltimore and Chicago. [Late-breaking bulletin: Index futures are falling, but probably not because investors fear America is coming unraveled. More likely, it is just the usual sleazeballs pulling their bids so that stocks can fall hard enough to exhaust sellers. That is how nearly all big rallies are propagated — with short-covering from artificially induced lows. It is a source of buying power that would continue unalleviated even with the warning sound of trumpets from on high.]
Although the rally on Wall Street flouts common sense and arguably even sanity, born-again bulls continue to rampage. What will put an end to their foolishness? Surely not more grim economic data, nor an increase in what is already the highest unemployment rate since the Great Depression, nor a wave of business failures that could eventually asphyxiate the consumer economy. None of these problems has even fazed investors over the last three months. However, creeping doubts about whether Trump is still a shoe-in to win in November could soon make further, upward progress impossible and even reverse the rally precipitously. It is hard to predict exactly when investors will get a whiff of this possibility strong enough to throttle the bullish hubris that has dominated the business sections lately. They may already have caught the scent of trouble, since stocks spent all of last week in an ominous stall. It became clearer as the week wore on that The Smart Money was distributing shares as gingerly as possible in order to avoid suffocating the delicate mix of buyers said to be driving the rally. The news media has invented the story that the buyers are largely millennials incited to day-trade by America’s long lockdown. If so, it’s difficult to imagine them, ensconced in their parents’ basements, accumulating exorbitantly priced FAANG stocks inflated by the Fed to simulate economic health. The Robinhood crowd may have been responsible for driving the forlorn shares of Hertz into a reckless spasm unlike any ever witnessed. But HTZ was selling for 40 cents a share, and it is far easier to goose the stock above $5 than to budge a $2600 share of Amazon an inch. Forget the Polls Whoever was doing the buying, they will soon have to reckon with the fact the Trump is no longer a cinch to win re-election. His diminishing odds have nothing to do with polls that show Biden out front by as much as 12 points. The surveys are wrong simply because a significant number of Trump voters who have been censured into silence by the news media and the popular culture’s scolds would rather not talk about it. But the election will be close in any case, since most voters are even more dug-in than they were in 2016. There are two factors that could be game-changers, however. One is that Biden and the Democrats are much better equipped than the GOP to steal the election with mail-in ballots. Their organizational skills are better in the big cities, where the big electoral blocs lie, and the Dems would have a big edge on and around college campuses. Their ballot-harvesting prowess will become even more crucial if the courts rule that anyone can show up at your door on election day to collect your physical ballot for tallying. Joe’s Little Problem The second factor that could swing the election to the Democrats is, paradoxically, Biden’s painfully obvious mental slippage. Any interview with him that runs longer than a minute or two reveals the seriousness of his decline. Biden can barely string two cogent sentences together, let alone run America, and Democrats must cringe when they picture sleepy Joe on the debate stage with Donald Trump. However, as most observers seem to recognize, Biden is no longer the actual presidential candidate; his soon-to-be-chosen running-mate is. He is committed to picking a woman of color for the job, and it will very probably be one of four women: Kamala Harris, Susan Rice, Stacy Abrams or Valdez Demings. The last is a Florida congresswoman whose 27-year career with the Orlando police force led her to the top of the department. A black woman in the White House is a Democrat’s wet dream, and it will bring them out in force on election day. Republican voters will respond in-kind to the perceived threat of a progressive coup that end-runs Biden — and that is how it would be seen by them as well as by an unknown number of centrists and independents. Given the near-lock that progressives have on the news media, the popular culture and virtue-signaling corporations, holding onto the Supreme Court is of life-or-death importance, politically speaking. The Democrats’ agenda has grown more menacing than anyone could have imagined just a month ago with extremists’ calls to defund the police. This kind of crazy talk is rightly viewed as an existential threat to the Republic. Wall Street, even in its current, sunny state of derangement, will not be able to ignore the menacing clamor of a mob that could be just an urban incident away from Maoist revolution. No Negatives It is Trump’s election to lose, and the news media will do everything in its power to defeat him. Stoked by leftist rabble that are effectively running America’s big cities now, editorialists will brazenly ignore any negative stories about Biden and his running mate. At the same time. they will hit Trump with everything they’ve got, treating his every misdeed as a potentially impeachable offense. The MAGA crowd will need to believe deeply in their cause to parry media lies as the campaign progresses. In the meantime, investors are certain to grow increasingly queasy as November approaches, and even despairing if Trump’s popularity should slip. The demands on his leadership will intensify as the nation edges toward civil war. Unfortunately, there have been few signs so far that the President is capable of rising above the fray to demonstrate the kind of wisdom Americans will need to get them through these extraordinarily difficult times.
Bulls showed no pluck on Wednesday, so we shouldn’t be surprised if they let the reins go slack ahead of the weekend. Given the tempo of truly appalling news and the possibility that something horribly destabilizing could occur between Friday and Monday, a trader would have to be crazy to load up on stocks right now. Should he therefore take the other side of bet? Thursday’s price action should give us an answer. If the market meanders sideways, that would make put options look like a juicy bet. Since it is not Mr Market’s habit of serving up juicy bets, what else might we look for? A sharp rally to spook bears would vex most traders, but there does not seem to be sufficient buying power to accomplish this right now. The third alternative, a nasty selloff, might be just the ticket, since it would have the paradoxical effect of scaring away shorts who have been whacked too many times by dip-buying maniacs. If there is in fact a sharp move lower over the next two days, and a short-covering rally to end each session, both of the rallies are likely to be opportune sales. ______ UPDATE (June 18, 7:47 p.m.): No change in my outlook. The Smart Guys have done an incredible job this week holding stocks aloft for distribution even though there was nary a bullish buyer in sight. With a steady tide of short-covering from nervous-nellie bears weakened to exasperation by buy-the-dips droolers, the market’s institutional sponsors were able to preserve the illusion that investors have nothing to worry about. However, with the very stability of America’s governance under threat on a daily basis, a trader would have to be crazy to load up on stocks ahead of the weekend. They are an enticing short sale here and will be still moreso if they rally from whatever manipulated low occurs overnight Sunday.
Investment manias are nothing new on Wall Street, but this time the heavy betting is on the mania itself. Speculating on volatility is the latest fad, and it is metastasizing so quickly that in just two short months wagers that the stock market will grow even crazier have become the actual cause of its craziness. The bets mainly involve derivatives, including options and ETFs that are tied to trillions of dollars worth of stock. Big guys, little guys and everyone in-between are supposedly immersed in this tail-risk crapshoot, and it is causing markets to spasm wildly not for bullish or bearish reasons, but rather, as implied above, because of the volatility bets themselves. Tail-risk mania’s fuse was lit in in January, when some canny institutional traders loaded up on then-cheap insurance against a market crash. This speculation proved to be timely, but it was more than just luck. They had access to good information that wasn’t available to most investors at the time. While some caught a faint whiff of Wuhan’s troubles back then, the stories were buried on inside pages, and few would have suspected that the threat of a pandemic would soon engulf the planet. The money managers, along with some muckety-mucks on Capitol Hill, were hearing the stories too, but with an urgent, well-informed emphasis on scary details that put the China crisis in play as a cheap speculation. A Covid-19 Epiphany The son of a friend saw it all coming in January because he got very sick himself after Chinese classmates returned to MIT following Christmas break. He nearly died, and the experience led him to warn his parents and grandfather to sell all of the stock in their portfolios. The hedge fund guys were on top of situations like this too, and its dire implications hastened their full-tilt shift into risk assets. Some of them have reported gains exceeding 200% so far this year. Lately they’ve been talking their book, baiting an eager news media that is often a crucial step behind the manias they love to write about. The Wall Street Journal, for one, ran a front-page article over the weekend under the headline Investors Bet on Volatility, Making Markets Even Wilder. It extensively quoted one Paul Britton, founder of a firm called Capstone Investment Advisors that is among the biggest players in tail risk’s Big Casino. On the runover page, Britton is pictured in profile, absorbed in thought as he gazes across a prairie panorama earnestly searching for the Next Big Thing. A blow-up of this photograph would make an inspiring poster on the bedroom wall of some millennial who recently discovered, not Rita Hayworth or Farrah Fawcett-Majors, but day-trading. Does he even suspect that Britton and his ilk have already moved to the other side of the bet, selling risk premium fattened to enormity by the pandemic and its grave list of unknowables? Probably not. In fact, nothing short of Armageddon could push pandemic put options in-the-money, and yet they are still an easy sale, the ultimate moral hazard. _______ UPDATE (June 16, 10:03 p.m. EDT): AAPL is closing on a very important rally target with he potential to stop the astounding bull run in its tracks, if perhaps only for a while. But there is one other possible development that would not only end the bull market, it would send the Dow Industrials plummeting below 10,000. It will not be a shocker or an epiphany, but rather a horrifying thought that will sneak up on investors like a dreadnought on a moonless sea. Stay tuned for more.
Reporters and their editors have been getting whipped around by the stock market, since the market drives the news, not the other way around. That’s why we were battered senseless with ridiculously optimistic headlines about the increasing likelihood of a v-shaped economic recovery. Although there is zero chance of this happening, the market’s absurd rally for incomprehensible cyclical reasons implied strongly otherwise. Lo, stocks fell hard for just one day on Thursday and the sunny stories on the front page vanished to make room for news about about a supposedly resurgent pandemic. Recall that Wall Street had no trouble shrugging off this story when it surfaced statistically perhaps a week earlier; now the same story, with a few more deaths, inspires only fear. Every news outlet in the country that covers the stock market attributed Thursday’s sharp drop to renewed Covid-19 fears. All of them were flat-out wrong. Stocks turned lower simply because the most important stock of all, Apple, hit an important Hidden Pivot rally target at 354.47 that had been disseminated to Rick’s Picks subscribers a week earlier with the stock trading $30 lower. AAPL, the 800-pound gorilla of market bellwethers, was due for a downturn regardless of what the coronavirus was doing. The spin on news stories about deepening recession and the spread of Covid-19 will continue to reflect the stock market’s cyclical ups and downs, which, more than the spread of the disease itself, determine the mood of headline writers and of America itself.
Nothing like a little good news to stop the stock market’s rally dead in its tracks. Powell announced that nearly-free money would remain available to big borrowers in more or less unlimited quantities until 2023. The Dow Industrials dropped nearly 300 points on the news, like a six-year-old having a snit when his sundae arrives with no cherry on top. Perhaps this latest gift from the central bank struck investors as a tad stingy? Compared to Europe, where they’re not only giving away money but slapping lenders who don’t with a surcharge, perhaps our guys have a point. One might have hoped that grim pandemic news out Wednesday might have balanced out the negative reaction to the stimulus news. The pandemic reportedly is resurgent in the U.S., most particularly in Texas, where a record 2504 new coronavirus cases were reported in a single day. Investors have routinely sent stocks higher on news like that, or at least marked time for a day or two. Alas, the heartless bastards showed no exuberance whatsoever. Are times so tough that bad news is treated like..bad news on Wall Street?
Two ‘mechanical’ trades I’d disseminated to subscribers Monday night and Tuesday morning, respectively, are showing gains totaling around $7200 at the moment. They were flagged in ‘tout’ updates for the E-Mini S&Ps and August Gold, and both included charts to help you visualize my instructions. The bull trade in gold was rated ‘6.6’ out of 10– not stellar odds, but not bad either for subscribers who may have grown tired sitting on their thumbs as the broad averages have continued their vertical rise. If I hear from at least two subs who did either trade and are still in it, I’ll establish a tracking position. In the meantime, unfulfilled rally targets for both are provided in the latest updates.
The Dismal Scientists were hard at work over the weekend, cheering the market’s powerful short-squeeze rally as though stocks somehow deserve to be trading at or near-record levels. Speculators evidently were not thinking about the pandemic’s effects on the global economy, only about a statistical blip in job creation that flouts common sense. Who were the buyers? Bored millennials, according to a story posted at Bloomberg. Just the kind of support Wall Street needs, not that anyone cares. Adults who should know better included economist Ed Yardeni, who saw Friday’s rally as a sign that the “underlying strength of the American economy will emerge intact.” He ought to look around, since a drive through any neighborhood in America will reveal how many business are never coming back. Let the tour start in Manhattan, if he thinks that it is just mom-and-pop stores that have been fatally wounded. A Reflex Reaction Far from a sign of resilience in the economy. the rally is simply a reflex reaction to a tidal flood of money created from thin air by the central bank. At these absurd heights, stock prices no more reflect economic forces of supply and demand than do Treasury bonds, corporate junk and real estate. The gaseous effusion driving shares is worse than malinvestment on an epic scale, it is inflating a debt bubble that eventually must pop. Yardeni and many other economists who cannot see the obvious are helping to stoke extraordinary popular delusions and crowd madness that cannot but end with a deflationary bust. It will be catalyzed mainly by imploding valuations for real estate and energy resources that thinly collateralize a quadrillion-dollar derivatives market. Once this financial catastrophe has run its course, it will require a hyperinflation to wipe out the government’s portion of our debts, which have become manifestly unpayable. The calculus of deflation makes a bust unavoidable; for ultimately, every penny of every debt must be paid — if not by the borrower, then by the lender. To think that the government can pump trillions of borrowed dollars into the economy without putting a fatal drag on future productivity is absurd. _______ UPDATE (June 8, 10:04 p.m.): With today’s giddy rally, the economic world enjoyed yet another day’s reprieve from catastrophic ruin. A 354 target in AAPL that lies nearly 7% above these levels would seem to imply that bulls still have some running room. Even more bullish is an outstanding target at 10,571 in the E-Mini Nasdaq.
The shockingly powerful rally from March’s bombed-out low has stalled in a very unshocking place, three ticks beneath a secondary top recorded just before stocks really fell apart. So far, the pullback has been shallow, implying bulls are sizing up the challenge presented by all-time highs achieved in mid-February. Getting there would be quite a feat, considering the global economy is probably no better than a 50-50 shot to avoid a full-blown depression. We’re more interested in the technical aspects of the rally, however, since an ‘impulsive’ thrust exceeding the peak by even a penny would refresh the bullish energy of the daily chart. How Not to Be Fooled If this happens it could always be a fake-out, not that that would necessarily fool us as long as we diligently monitor the strength of corrective abcd patterns on the intraday charts. My gut feeling is that the maniacs driving this epic short-covering rally have come too far to leave the offending secondary peak unbloodied, and that’s why we ought not be too aggressive betting it will hold. Once the futures are decisively above it, however, a dose of skepticism will be warranted, given the obvious challenge of all-time highs that Wall Street’s wack-jobs will see as a dare. Mr. Market will be watching, of course, presumably wanting the sunniest optimists to make his day.
The Nasdaq 100, bloated with helium-inflated FAANG stocks that portfolio managers never sell, appears all but certain to achieve new record highs, probably within the next 2-3 days. With the index trading 250 points lower a week ago, I’d said that a two-day close above 9585 would all but clinch a move to at least 10,575, a Hidden Pivot target derived from the E-Mini Nasdaq’s weekly chart. That would be a little more than 8% above the old summit at 9780. The futures have in fact closed decisively above my benchmark as required, hinting of significant buying power percolating below the surface. We will soon be reading about how the relative handful of companies whose shares are responsible for this maniacal rally are going to single-handedly save the day for the global economy. If you are inclined to help make this fatuous prediction come true, I’d suggest using your $1200 check from Trump to buy an iPhone over the weekend.
With the nation in deep crisis, stocks continued on their heedless path higher. The seemingly demented rally is demonstrating yet again that bull markets at some point decouple so completely from reality as to mock those who thrive by promoting them. By now, the spun story that investors are looking past the pandemic and focusing on renewed growth is sounding increasingly farfetched. Some economists estimate that it could take more than a decade for economic activity to return to what it was before Covid-19. We don’t need economists to prepare us for the worst, though, since we can see the truth of what they are saying all around us. Huge write-offs yet to come will dwarf the relatively paltry trillions pushed, in the name of stimulus, into economic dead zones. What the money has stimulated, mainly, is the markets, but with some big holes. For example, the collapse of just one category of financial derivatives — ETNs, or exchange trade notes — threatens investors with losses of as much as $7 trillion. It is never coming back. $$ Trillions Are Trapped But there will be vastly larger losses coming in real estate — in New York City, among a dozen urban centers, where hundreds of thousands of workers will not be returning to their office-tower jobs. The ripple effect from this will devastate businesses on the surrounding streets, turning Gotham itself into a gangrenous appendage of workers who needn’t ever leave their homes or travel to distant centers. Out-of-town business meetings will be moved online, causing huge swaths of the nation’s transportation infrastructure to wither. Planes, trains, buses, subways, taxi fleets, cruise ships and Uber cars will trap tens of trillions of dollars’ worth of investment capital as the cost of storing and maintaining idled resources continues to mount. Hotel rooms will grow dusty. Nearly every movie theater in America will be torn down with no obvious tenants to take their place. The death of shopping malls will add massively to the deflationary hit that sunk capital is about to take. Do investors who have been bidding stocks back up to their pre-pandemic levels recognize any of this? Obviously not. There is no way the current, v-shaped mania can end well.
Just when toilet paper supplies were starting to loosen up, we learn there’s a run on pepper spray. Do people who live in or near big cities dare leave home without it? You may be in greater danger than you think, what with Antifa threatening to fan out into the suburbs. More effective than pepper spray would be a lawn sign advertising your zealous support for the Second Amendment. Concerning the looting and riots, which seem to have quieted now that the weekend is past, seekers of ‘social justice’ missed a historical opportunity to make a magisterial impression with candlelight vigils across the land for the late George Floyd. The impact that peaceful marches might have had has gotten lost in a blaze of looting, mayhem and rage, much of it captured, with horrifying explicitness, in videos that ran 24/7 over the weekend on the major networks. The lingering images will pose a serious setback for the aspirations of black Americans while boosting the electability in November of candidates known for taking a strong stand on law and order.
Index futures have done a tentative alley-oop Sunday night, feinting lower before moving as though to challenge Friday’s nutty highs. They occurred, apparently, because Trump was not as hard on China as he could have been when he addressed the nation ahead of the closing bell. Anyone mystified by the stock market’s latest burst of exuberance hasn’t been paying attention to the steep rally that has occurred since late March with a global depression looming. For a market that appears to be thriving on bad news, the headlines over the weekend could not have been more encouraging: looters running amok in America’s largest cities; record unemployment; millions of rents and mortgages going unpaid; a menacing chill in U.S. relations with China; bankruptcies sweeping through nearly every sector; the devastation in particular of travel, dining and entertainment; the huge capital write-downs coming in the energy sector as subways, buses, trains and planes worth hundreds of trillions of dollars face obsolescence and enormously costly overcapacity. Under the circumstances, need we even ask why stocks are holding up so well? Investors, as we noted here earlier, are mentally ill. Kudlow and Mnuchin might dispute this, but the rest of us know better.
Bears eager to get short near the top of the stock market’s inexplicable rampage could have just one chance left before shares blast off for infinity and beyond. This is the clear implication of the chart included with my latest forecast for the Nasdaq 100 (see below). On Tuesday the E-Mini Nasdaq futures peaked almost precisely at a long-term Hidden Pivot resistance located in a place that has been known to show magical stopping power. The futures sold off more than 4o0 points after touching it, but they recouped more than half of it Wednesday, showing no sign of fatigue at the bell. The 9604 high could conceivably mark the end of the vertical rally since March 23. However, if the June contract closes above the 9585 pivot for two consecutive bars on the weekly chart, that would make a run-up to 10,571 an odds-on bet. That is a little more than 9% above the all-time high at 9763 recorded in February, and it would make this spring’s sensational running of the bulls even more inexplicable and frightening. Although health officials are cautiously optimistic about a vaccine, Wall Street is quite obviously wildly optimistic. ______ UPDATE (May 28, 6:37 p.m. EDT): Subscribers in the Trading Room around mid-day could have jumped on a short I detailed explicitly in the E-Mini Nasdaq futures (see chart above). Check out my posts on this beginning at 12:26 p.m. if you want to determine whether you could have pulled the trigger. It occurred 21 points off the intraday high, just ahead of a 147-point plunge worth as much as $588 per contract. By the close, 75% of the initial position had been covered, with one contract remaining for a swing at the fences. That was the purpose of this gambit, as the headline stated.