Those who write about such things have attributed virtually every stock-market rally since March 23 to ‘vaccine hopes’. They have overworked and over-hyped this phrase with no sense of irony or awareness; for it is not so much ‘hope’ that has powered stocks to insane levels, but monetary stimulus pumped liked steroids into a beast that was rabid to begin with. This is the kind of ‘hopeful’ that T-Rex must have felt when it cornered a chubby dinosaur half its size, or that a drug addict might feel after springing the lock on a cartel storage locker filled with white powder. ‘Hopeful’ is far too modest and gentle an adjective to explain the mass psychosis that has gripped Wall Street over the last ten months. When Bad News Is Bad News Now that a vaccine has finally arrived, however, it is fair to ask what will keep speculators’ hopes inflated to infinity. Under the best imaginable circumstances, it will probably be at least two years before we can look back on the pandemic and marvel at how we finally beat it. We’ll know this has happened when salad bars re-open, subway cars are packed with commuters, and nursing homes welcome visitors with open arms. Does anyone on Wall Street actually believe this is how things are about to play out? More realistically, the stories we will be hearing — about vaccines that have never been tested on animals or even on significant numbers of humans — will be scary ones: injection-related deaths, bizarre symptoms, transmission of Covid by the inoculated and the asymptomatic, sterility, vaccine-resistant mutations, inscrutable infection spikes in places locked down like fortresses. At that point, such hopes as remain will be vested in the central bank and its perceived willingness to step up interventions on bad news. If investors are counting on the bad-news-is-good-news delusion to persist in 2021, however, they are in for a rude awakening. They have bought the rumor for nearly a year; now it is time to sell the news before it becomes gravely worse.
Stocks have turned timid, although it remains to be seen whether the moderate selling that ended the week will gain momentum as Biden’s inauguration approaches. Regardless, the smell of distribution is in the air, and it is not subtle. As the tempo of it picks up, expect DaBoyz to work overtime trying to convince us that Wall Street is down with the Democrats. Big Business owns Biden, right? Well, yes and no. It’s true that the Silicon Valley muckety-mucks have less to fear from him than from Trump. But there’s no getting around the scary fact that this will mark the most radical political change in U.S. history. Most of Biden’s appointees are familiar faces from the Obama years, and that has reassured those who hope to benefit from the Democrats’ electoral sweep. But the political checks and balances that existed when Obama was president no longer obtain, and one-party rule could conceivably run amok in ways that Biden’s corporate cheerleaders have failed to anticipate. A Fragile Economy For the time being, though, the vaccine program will get most of the attention. Biden and the Democrats will own it in just a few days, but its success is hardly assured. His procedures and protocols for dealing with the pandemic are unlikely to differ much from Trump’s, since there is not enough hard science to justify changing things radically. The danger is that even a small tightening of the lockdown could undo an economy whose fragility has been masked by the powerful bull market in stocks. Do the Democrats understand this? We may be about to find out. But there should be no illusions in the meantime that the Democrats, cozy as they are with Silicon Valley and social media’s opinion-shapers, will be great for stocks.
With gold’s gratuitous, 4% plunge on Friday, bullion has once again affirmed its reputation as one of the nastiest, most frustrating assets an investor can own. Its chief enemy is a global network of shamans, thimble-riggers and feather merchants who make their living borrowing bullion from the central banks for practically nothing, then lending it to everyone else for slightly more. They are always looking for excuses to pound quotes so that they can replace what they’ve borrowed at a lower price. Helpful to this goal is a story that, however ridiculous, spooks gold bugs into dumping their holdings. The current story is that the Democrats will somehow be bad for bullion, although no one can say exactly why. To believe such claptrap is to implicitly believe that when Kamala Harris takes over for the mentally failing Biden, she will impose rigorous constraints on spending that will strengthen the dollar. Yeah, sure. But that’s not the point. The balance of power is about to change so radically in Washington that no one really knows what will happen next. For all we know, the Republic might not survive until mid-term elections in 2022. If such a grave crisis is in fact bearish for gold and silver, then Harris, Schumer and Pelosi are bullish for America and the dollar; Greenspan, Bernanke and Powell were skinflints; John Wayne was a homo, and beer causes cancer. Biden’s Replacement The bottom line is that we should tune out bullion’s rigged swoons until the crooks and shysters are ready to let it run. Sometimes it takes courage and conviction to stay the course, and this is one of those times. The chart shows that gold’s correction since August has been moderate and that when it ends, there is potential for further appreciation to at least $2290/oz. That’s a 25% gain from current levels — sufficient to outperform the broad stock averages just as bullion has reliably been doing for years. There is just one caveat for gold bugs — the possibility market forces will make it impossible for the Federal Reserve to continue doing ‘whatever it takes’ to keep the asset bubble fully pumped. It is one thing to force-feed money into the economy so that consumption does not collapse. But will the central bank be so accommodating when it is a cavernous socialist maw demanding to be fed? Well before then we could see market forces that have been pushing up Treasury rates recently make further easing impossible. Tightening is not even remotely on investors’ radar at the moment, but even a small turn of the screw would devastate stocks and bullion. The former would likely be down for the count, while gold and silver might be expected to get second wind once investors figure out that Tesla, bitcoin and junk bonds are poor places to store wealth. Hold onto to your ingots and doubloons in any event, since, in the worst of times, they are certain to retain their purchasing power relative to all other types of investable assets.
[Note: This essay ran earlier in the week but I am re-running it because Copper broke out today on the long-term chart, hitting a so-far high of $3.71. RA] Copper prices are up 75% since cratering in March at $1.97 a pound. Since ‘doctor’ copper, with a supposed PhD. in economics, has a reputation for accurately predicting growth trends, does this mean a global boom is at hand? This seems most unlikely, given the vast expansion of public debt used to temporarily counteract the economic effects of the pandemic. The debt, many trillions of dollars’ worth, is the direct cost of supposed stimulus, which, as any idiot can see, has catalyzed asset inflation rather than any real economic growth. Unfortunately, when the party ends there is no way we will evade repayment, even if it means depreciating the dollar to zero via hyperinflation. There is only one alternative, a deflation that would effectively cancel all debts with a wave of bankruptcies at every level of the economy: public, corporate and private. Neither path is palatable, but it is virtually certain that one or the other, or perhaps both sequentially, will occur, since our collective debts have grown far too large to repay with hard money. Purely Speculative Concerning the chart, it shows that copper prices have stalled in a very crucial place, precisely at a $3.63/pound ‘midpoint Hidden Pivot’. If the rally had instead impaled the resistance or gapped through it on first contact, it would have implied beyond doubt that prices were headed to the pattern’s $5.33 target. That would be an all-time high and in theory indicative of strong global demand for copper. Could that possibly be right? No, it could not; far more likely is that it would reflect a blowoff in purely speculative demand for tangible assets. No boom in manufacturing is coming because making things is no longer the ticket to wealth. The big money lies in ‘doing deals’ with grotesquely inflated paper assets, and in advertising widgets, as Google and Facebook do, rather than producing them. If you want to know where the financial system is headed, and how quickly it could get there, keep your eye on the $3.63 pivot price in Comex copper.
Interesting times, for sure, but apparently not quite interesting enough to dampen the ardor of wildly exuberant buyers on Wall Street. With patriots storming the doors of the Capitol and a reported shooting inside the building, the Dow Industrials still managed to finish the day with an immoderate gain of 438 points. Do the institutional chimpanzees who were doing most of the buying know something we don’t? More likely is that, because they get their news from MSNBC and the networks, they were ignorant of certain developments that could profoundly unsettle America. Read all three parts of this remarkable exposé to understand just how serious the crisis could become. If you’ve been puzzled by Vice President Pence’s bizarre willingness to certify an election that he surely knows employed massive fraud to turn him and his boss out of office, the linked story provides a compelling motive. In the meantime, don’t expect the patriots to go home any time soon. They blocked the certification of electoral results as intended, and they can probably do it again as long as they remain peacefully within the bounds of the First Amendment. Not surprisingly, the extent of the violence is being exaggerated to a brazen extreme by a news media that saw the torching of Portland as ‘mostly peaceful’. For his part, Trump was so forthright in telling them all to go home that the news media will have difficulty convincing even the most ignorant viewers that he incited violence. If you want to better understand what is going on and what is about to unfold, listen to the news with a skeptical ear. They have been wrong about everything so far, and they will be just as wrong underestimating the extent to which the world-shaking events of the next few weeks were planned by the good guys.
To all of my subscribers and readers, warm holiday greeting and best wishes for a happy, healthy and prosperous new year. It begins with many troubling issues unresolved, most particularly the question of who will be the next U.S. president. Various vaccines promise to ease the pandemic, but possibly not in time to prevent many small businesses from failing. A bright spot, particularly in states like California, New York and Michigan, where dictatorial governors have disregarded individual rights, is that business owners are at the point of revolt. This bodes well for America, since our political leaders are obviously in need of rebuke and a reminder of whom they would serve.
The broad averages have been lapping at some long-term rally targets this week, although not so voraciously that bears should dive for cover quite yet. A 304.07 target for DIA has been exceeded so far by 1.63 points; a 312.29 target in QQQ by 2.35 points; and 12,829 target in the E-Mini Nasdaq by 89 points, or 0.6%. These Hidden Pivot resistance points have already served us well, keeping us comfortably on the right side of powerful uptrends that flouted the pandemic’s fatal effect on a wide swath of the U.S. economy. Small businesses are failing by the thousands each day, creating structural unemployment problems that will be with us even if there are ten more stimulus packages yet to come. Wall Street seems not to care, as long as a handful of mega-cap companies that earn their money mainly from advertising continue to grow in value. They have been inflating ‘wealth’ by tens of billions of dollars each day, dulling whatever lessons investors may have learned from the last bear market. Please note that the Dow Industrials are poised to rally a further 2300 points, to at least 32,692, if the new year begins with a bang. It’s hard to imagine what could stop it.
With the post-Christmas resumption of trading Sunday morning, bitcoin tacked on an insane $3,000 in the blink of an eye. Even more preposterous is that a correction one might have expected to last for at least three to five days appears to have run its course in mere hours. This has raised the prospect of cryptomoney fever achieving yet another record high before dawn. How much farther could the rampage go? A projection using the Hidden Pivot Method suggests that the next big thrust will hit 33,600, about 6000 points, or 22%, above these levels. But why should it stop there, we might ask, with mass hysteria’s Olympus beckoning at 100,000? We’ll be better able to assess whether bulls have the gumption to get there once we’ve seen how they handle the ‘hidden’ resistance at 33,600. If this proprietary pivot is dramatically impaled on first contact, be prepared for a burst to 50,000, a marquee-quality number that would be in play simply because I will have run out of Hidden Pivot targets. Support from Billionaires Disclaimer: I think bitcoin is, if not a hoax, then a cleverly marketed scheme on the order of alchemy and cold fusion. I get emails all the time from bitcoiners convinced cryptocurrency should be prized over all other investable assets, particularly gold. The most fervent believers are robinhoodies and millennials with little experience of precious metals, other than as jewelry that old people wear. At gold’s expense, they have helped push bitcoin into its second speculative mania, the first having ended woefully in 2018. The collapse that year took it from an all-time high of 19707 down to 3134. The current short-squeeze supernova has much more power behind it, however — not only from speculative excesses fueled by buyers too young to know about or fear bear markets, but with the support of big-time pied pipers like Paul Tudor Jones, Stanley Druckenmiller and Twitter’s Jack Dorsey, who have been talking their book non-stop since the beginning of the year. My prediction is that Bitcoin Mania 2.0 will end badly as well, albeit from much loftier heights. In the meantime, look for the smart money to help fan rumors of a Guvmint crypto takeover whenever the sleazeballs want to shake loose supply at relative fire-sale prices. The inevitable corrections promise to be doozies, ripe for trading with ‘mechanical’ set-ups like the ones we used several years ago to stay confidently on the right side of an insane uptrend. Stay tuned if you need convincing that a tidal wave can be surfed boldly, and successfully.
Statistical and anecdotal evidence suggest that if you are elderly and want to survive Covid-19, you should move to a red state. Here in Florida, Governor Ron DeSantis has imposed few restrictions, yet somehow we are not dropping like flies. The Sunshine State in fact is well down the list of places where the pandemic is alleged to be winning, but it is surely not because we are tightly locked down and masked 24/7. To the contrary, everyone who lives and works here is free to do pretty much as he pleases, subject to the test of common sense. I suspect there are millions of us who wear masks not because we are persuaded that the science behind them is correct, for it is muddled at best, but to be polite and to humor those who think a loosely attached, cotton face cone purchased from CVS could somehow shield one from Covid’s submicroscopic, infinitely clever airborne spores. Life goes on hereabouts in any event. Outdoor concerts and street fairs, though not explicitly forbidden, are few and far between not because we are afraid of outdoor crowds, but because promoters fear they’ll lose money on such events. A Witch-Hunt In my gated community, the three golf courses are more crowded than ever, and nearly all amenities are open, including dining rooms, fitness center, salon, neighborhood swimming pools, pickleball and tennis courts. Not everyone chooses to use them, however, and some neighbors, including one of my oldest friends, are so paranoid that they will not even touch a ping-pong ball or billiard cue that has been handled by someone else. Science tells us that Covid does not transmit very well on surfaces; but better not to touch anything at all, some evidently believe, than risk dying from contact with a contaminated ping-pong ball. The average age of residents at Hunters Run exceeds 70, and so there are some sensible in-house restrictions that everyone follows. One of them is a quarantine regimen that requires all visitors from out of state, even family, to get tested twice for Covid, the second time 72 hours after getting here. Although I’m skeptical myself that the tests are useful other than as a placebo, I have followed the rule myself because I don’t want to risk being at the epicenter of some contact-tracing witch hunt that stigmatizes family and friends. I feel sorry for my New York and California friends and siblings because lockdowns there have turned great urban centers, notably San Francisco and New York City, into economic and cultural dead zones. Still worse is that they have made people who live in those places deathly afraid of a virus that few of us who dwell in the vast red spaces of America’s political map worry about. Because many of us will choose not to be vaccinated, at least not right away, the Pfizer/Moderna rollout is guaranteed to produce an edict to the effect that if you have been inoculated, you get to proclaim it to the world with a brightly colored armband. Cuomo will be the first to display his, and, unmitigated asshole that he is, he will flaunt a waterproof version that can be worn in the shower. In deep-blue states where Fauci and Bill Gates are wildly popular, they may take the additional step of providing digital implants to speed sheeple who have had their shots through ubiquitous checkpoints bearing the Windows logo. Red-state denizens can take heart, since such excesses are certain to spark a popular uprising or even a civil war. That’s assuming, of course, that a Boris Johnson-style, Tier 4 lockdown hasn’t done so before then.
I’d be lying if I told you I smell a top. That would be like noticing a fart in a coffee roasting plant. With exuberant expectations of stimulus until kingdom come, the rapturous aroma of Kona dark is all that investors detect when they sniff the air for the scent of trouble. After all, what could possibly go wrong? Even at full-tilt war, Democrats and Republicans still agree on one thing — i.e., that the money spigot must remain open no matter what. They differ only as to a timetable and how many trillions of dollars should be force-fed into the economy in the next round. Meanwhile, companies are so flush with cash that they don’t know what to do with it all — other than the obvious: buy back their own shares. And now comes a vaccine said to render Covid-19 harmless in 94% of those who get two shots spaced weeks apart. All this aside, I am not relying on my sense of smell — which is to say, my instincts — to warn of trouble just ahead. However, I do see distinctive topping patterns in the charts of no fewer than three important trading/investment vehicles. Subscribers should be familiar by now with the precise details, including price targets and some cheap ways to get short. Even if it turns out that I have overestimated the threat of a major selloff, you should still be on high alert. If a rally instead impales my Hidden Pivot resistance points, we can always go back in the water and surf Mavericks with the crazies.
Here was a reassuring headline last week from Forbes online: Airbnb’s Higher Valuation Is Reasonable. What a relief! We can always count on the financial news media to provide a list of reasons why a stock is not overvalued no matter what its price. The trouble is, the story appeared before ABNB went public last Thursday. The IPO had been pegged at $56-$60 per share, amounting to a valuation of around $35 billion. However, when the stock actually began to trade, it opened at $146 and rose in minutes to $165. That’s a valuation of more than $100 billion – not bad for a business that has been drowning in red ink since the pandemic hit last spring and which even before then was challenged to bring any revenues down to the bottom line. “The new valuation,” continued Forbes, referring to the $60/share benchmark, “changes nothing about the firm’s business but increases the execution risk of management achieving the expectations baked into the stock.” Ahhh, “execution risk”! That’s a quaint old term used mainly to downplay the possibility that a company might not be able to live up to shareholders’ greediest expectations. In the case of ABNB, it would seem that investors are looking many years ahead, to a time when the pandemic is recalled with nostalgia, and when residential neighborhoods have become so densely packed with wayfarers that local restaurants and hostelries will have to turn away business. Not Doing the Math The recent IPO of Door Dash, the eternally profitless meal-delivery service, looks even worse than ABNB’s. The seven-year-old startup lost $667 million in 2019 and another $149 million through October of this year. And yet, when DASH’s shares began to trade last Wednesday, they achieved an 85% mark-up above their IPO price instantly, equating to a market cap of $72 billion. This too is not bad for a company that doesn’t have a prayer of turning a profit in the foreseeable future. The service continues to attract employees nonetheless for the same reason Uber and Lyft are able to churn workers: none of them can do the math associated with depreciating and maintaining their vehicles. Speaking of doing the math, this task is obviously too challenging for the RobinHoodies who are fueling IPO mania. IPO craziness has always been with us, to be sure, but never before has it been turbocharged by (mostly) young men who cut their teeth on game consoles. Their unfamiliarity with bear markets has made them fearless, and few of them would know in any event that the IPO business is run by dirtballs who make carnival-midway broad-tossers look like choir boys. This time around, the shoeshine boy is not merely circulating hot tips from well-shod customers, he is in the very thick of it, compounding profits at a rate that even the most seasoned hedge-fund managers must envy.
The yellow flag is out now that the obsessively owned Russell 2000 Index has topped 14 cents from a long-term Hidden Pivot target. IWM, an ETF proxy for the small-cap-heavy Russell index, has rolled down from 192.81, slightly beneath a 192.95 Hidden Pivot resistance I’d drum-rolled in the Rick’s Picks chat room Wednesday morning and on Facebook and YouTube a day earlier. Some subscribers were able to leverage the potentially important high by buying Jan 22 140/150/160 put butterfly spreads for around 0.20 as advised. Please report any fills in the chat room, but don’t chase the trade. IWM plunged nearly $5.00 after coming within pennies of the target. Although it rebounded modestly toward the end of the session, the burden of proof will remain on bulls until such time as IWM closes above 192.95 for two consecutive days. We will try to get short again if this happens, since there is another target between current levels and 200 that looks capable of delivering another enticing longshot bet. I’d characterized the trade as speculative but still worth a look. We are getting theoretical odds of 50-to-1 against a collapse in the Russell index by late January, and the most we can lose is around $20 per butterfly. Theoretical upside potential is $1000, although in practice exiting for $700 or so would be a pretty good trick. Note that that would still be getting 35-to-one — not bad in a market as vulnerable as this one. Chimp Geniuses We have focused increasingly on the Russell idex in recent months because it has turned white-hot. The heat was applied by chimp geniuses paid absurd sums to throw Other People’s Money at a handful of stocks they’ve all agreed on. They realized one morning that they were immersed in insanely overvalued mega-cap ‘lunatic stocks’ up to their eyeballs and decided to gratuitously change their investment ‘theme’ as they so often do. The resulting stampede into something else…anything else has made many small-cap stocks almost as overvalued as the tech-glutted Nasdaq 100. Now, sing the 192.85 target, we could know soon whether bulls have run out of gas. Please note that the record-high cash hoard companies reportedly are sitting on is entirely offset by money they have borrowed.
Although no one can predict when the dam will break, plunging the economy into hard times to rival the 1930s, we can be quite certain that a day of reckoning is drawing near. Speculative mania across a wide swath of assets is at a millennial peak, stoked by out-of-control fiscal and monetary stimulus. To further destabilize the system and push insanity to untold heights, the Fed has led speculators to believe it will continue to do whatever it takes to sustain the illusion of economic growth. Reflections from two economists who have remained aloof from the popular wisdom explain why this cannot last. They do so not with jeremiads warning of doomsday, but with clear, hard logic. Here’s Hoisington’s Lacy Hunt, PhD: “Each additional dollar of debt in 1980 generated a rise in GDP of 60 cents, up from 54 cents in 1940. The 1980’s was the last decade for the productivity of debt to rise. Since then this ratio has dropped sharply, from 42 cents in 1989 to 27 cents in 2019.” In case you missed his point, let me state it another way: It is taking roughly $3.70 of borrowing to create a dollar’s worth of economic growth at the margin, and the ratio is continuing to worsen. How long can that go on? A Bubble Unimagined I wrote on this subject myself — for Barron’s, two decades ago, in a think-piece about money velocity. At the time, debt was nearly three times as productive as it is today. Even so, in comparison with post-War numbers, it looked like a disaster in the making. I thought it was curtains for the economy, but in retrospect my overblown fears reflected a failure of the imagination. All we got was the relatively piddling Dot-Com Crash. It was a picnic in comparison to The Great Financial Crash of 2007-08 that nearly took down the global banking system. Dare we pretend that the inevitable next crash will be milder? The second economist worth heeding is Doug Noland, publisher of the Credit Bubble Bulletin. I quote him here at length because every word is helpful to understand exactly what has been going on: “Bear markets, recessions and even crises are fundamental to capitalistic systems. While painful, wringing excess out of both Financial and Economic Spheres is essential to long-term soundness and vitality. And the sooner the better. Wait too long and policymakers won’t risk reining in Bubble excess. Yet such analysis sounds hopelessly archaic these days, as excess, distortion and structural impairment compound in perpetuity. “Central banks have made the conscious – and fateful – decision to abrogate Capitalism’s adjustment and cleansing processes. A solid case can be made we’re at the most dangerous phase of the Bubble period: financial and economic fragilities (associated with decades worth of excess) ensure central bankers push extreme stimulus measures while turning a blind eye to outrageous excess.” Groundhog Day The longer we wait, in Noland’s view, the worse the correction will be. Although the mania is almost certainly in its terminal phase, there is no reason to think Janet Yellen, Biden’s choice for Treasury secretary, will end the party any time soon. Almost no one has a bad word to say about her, presumably because investors, money managers and the news media are so certain she would never tighten credit. Noland perfectly captures the irony of this in a Yellen quote: “There really is a new kind of recognition that you’ve got a society where capitalism is beginning to run amok and needs to be readjusted in order to make sure that what we’re doing is sustainable and the benefits of growth are widely shared in ways they haven’t been.” Well-intentioned but economically daft, she sincerely believes that it is capitalism that has run amok and not a central bank hell-bent on avoiding debt deflation. For their part, investors act as though Yellen will prevent the proverbial groundhog from seeing its shadow, and that crocuses and daffodils are about to bloom at winter solstice. What’s wrong with this picture?
You need only watch Giuliani’s hearings on election fraud for an hour or so to understand how the computer geeks could overturn Biden’s win. It’s like having a seat behind the scoreboard for Bobby Thomson’s “shot heard ’round the world.” Forget all the supposed right-wing-conspiracy stuff, including charges that Dominion, the voting-machine company, shares DNA with Hugo Chavez. It turns out that this is verifiably true — has been verified, actually, even if no one from the Washington Post or the New York Times could be bothered with such a trivial task. Neither, quite evidently, have they looked at Dominion’s operator’s manual, which apparently explains in so many pages how to hook up their equipment to the internet. Dominion has flatly denied this can be done, so confident are they that no big-league reporters would think to ask them for a copy of the manual. No matter. The truth about the company will out eventually, but it’s not crucial to Trump’s case; nor for that matter are strong accusations from Trump himself. Amidst the din of denial, The Wall Street Journal embarrassed itself last week with a laughable item about how the President has been telling those closest to him that he knows he’s lost the fight. Yeah, sure. Watch him the next time he’s on TV and judge for yourself whether he’s ready to pack it in. With recounts continuing, the news media have sustained an ostentatious yawn for nearly a month. If this were Nuremberg, they’d be high-fiving Bormann’s defense team. Keep pretending nothing happened, you jag-offs, because the forensics whizzes are about to knock you on your ass. Their Einsteinian grasp of election math may not provide the hard evidence skeptics say has been missing, but it will point auditors in precisely the right direction to determine exactly how fraud was committed. The data experts are right out of central casting, for sure — boring “suits” who drone on about variable integers and decimal stops. But they know what they know, and they know it so well that one of them actually said on TV that he’d stake his life on his conclusion that massive fraud took place in Pennsylvania. Toppling a Wall of Denial The news media have done a pretty good job smacking down a thousand incriminating moles that have popped up during testimony in five contested states. Unfortunately for Biden and Rachel Maddow, the power of just one small truth is enough to topple a towering wall of denial. The naysayers seem to think that if they keep batting down the wing-nut stuff, eighty million Americans will just forget about some particularly troubling stories that are glowing radioactively and eventually will detonate. One of them literally recounts Biden’s amazing late-night comeback in some Michigan precincts where votes totaled as many as 130% of registrants. Another concerned a truckload of paper ballots that were transported from New York to an empty lot in Pennsylvania. Assuming this actually occurred, as one elections expert testified during Wednesday’s hearing in Lansing, it could only have been for the purpose of shuffling pallets of bogus paper into Pennsylvania’s tabulators. There are so many hundreds of these stories in play right now, most of them introduced via sworn testimony, that even if only a score of them turn out to be true the election would be irredeemably compromised. To say there is ‘no evidence of fraud’, as nearly every major news outlet has been doing, is an affront to all decent Americans regardless of their politics. A lie this big cannot and will not stand.
Even with Covid-19 fear-mongering ratcheted to-the-max, the stock market continues to defy gravity and common sense. A Dr. Andre Campbell warned over the weekend that “we could be facing an apocalypse by Christmas” due to the growing number of hospitalizations. Does he mean apocalypse in the Biblical sense, implying the final destruction of the world? We await clarification, although there are reasons to be skeptical about his claim. For one, he is a trauma surgeon, not a virus expert. And for two, he is speaking for Zuckerberg San Francisco General Hospital, known as ‘San Francisco General’ when, decades ago, I lived in the Portrero Hill neighborhood where it is located. The facility was notorious back then for stuffing its corridors with Medicaid patients on gurneys. All praise to the Zuck if he has improved the level of care, but he would be doing the world a kindness by confining his chief means of thought control to Facebook. Concerning the stock market in these all-too-interesting times, it has shown scant concern not only about the economically crippling course of the pandemic, but also about an unsettled election that could produce the most anti-business administration in U.S. history. Some Trump advisers reportedly have told him to give up the fight. But considering the President’s not exactly groundless charge that Biden won by fraud, as well as his reputation for never backing down, there is close to zero chance he will concede before the courts have heard him out. (If you think the effort is doomed, as the news media would have us believe, read this when you’ve finished my commentary.) Jot Down This S&P Target So what can we expect from the stock market as investors’ hopes rise toward a generational peak? I wrote here earlier that you should prepare to sell the news – in this case, the imminent introduction of an effective vaccine and an orderly transfer of power. From a technical standpoint, the broad averages still have some room to rally before they encounter resistance from some compelling ‘Hidden Pivots’. For your information, the relevant price target for the S&P futures is 3802, about 3.5% above the record 3668 achieved three weeks ago and 165 points above Friday’s closing price. A corresponding rally in the Dow Industrials would put it near 32,000. One thing is immutably certain: Things cannot end well for investable assets whose value has been grotesquely distorted by decades of Fed-induced malinvestment. Monetization, now combined with all-out fiscal stimulus, have continued unabated for years regardless of what the economy was doing. Unhappily for all of us, it is requiring increasing amounts of borrowing to sustain the illusion of prosperity. One reason this epic fraud has continued for as long as it has is that public and private pensions are but a bear-market away from insolvency. This is a problem that neither fiscal stimulus nor helicopter money can fix. The coming depression will make this tragically clear, laying bare the central bank’s idiotic scheme to borrow our way back to economic health and permanent prosperity. Enjoy the party while it lasts, but don’t imagine the “Fed put” can sustain such foolishness indefinitely.
The stock market is under heavy distribution, and for good reason: Even if the vaccines we’ve been reading about lately are as effective as claimed, they will be too late to prevent tens of thousands of U.S. business from going under. Supposedly, vaccines from Pfizer and Moderna are nearly 100% safe and 95% effective. This is wildly speculative, since no one knows how long immunity will last; whether those who get vaccinated will still be at risk for transmitting the virus to others; and whether mRNA vaccines will cause serious autoimmune reactions. These are hardly niggling concerns, although they didn’t stop investors from bidding shares into the ozone when Pfizer announced encouraging trial results two weeks ago. Stocks were already priced for perfection, discounting not only the prospect of a Covid-free world, but the possibility of the U.S. economy returning to the 3%-plus growth it enjoyed under Trump’s stewardship. These are just pipe dreams, and crazy ones at that. Biden is not Trump; he is a political wimp, and the Democratic Party to whom he owes his apparent victory is extremely anti-business. They have said as much, and that’s reason enough for investors to brace for a ‘Trump rally’ in reverse starting sometime before Biden takes office. The coming bear market will draw irresistible power from the vaccine’s inevitable failure to effect an instant cure, and from the economy’s inability to return to anything even remotely resembling its ebullient old self in the foreseeable future. Folly’s Apogee Under the circumstances, there has probably never been a better time to ‘sell the news’, since shares have been ascending heavenward since March on hopeful ‘rumors’ of a global cure. The effect has been supercharged by unprecedented credit stimulus flooding into shares, real estate and the consumer economy. When the downturn hits, the Guvmint will get the blame for failing to enact a second stimulus package. It is true that the Fed and Mnuchin have remained in a standoff over the size of the next stimulus. The Fed likes the Democrats’ $2.2 trillion package, which makes Treasury’s $500 billion, Republican-backed offer seem niggardly in comparison. In truth, neither would provide more than a temporary shot in the arm for a vast swath of travel-and-entertainment businesses that are headed into certain bankruptcy this winter. And even under the best of circumstances there is zero chance that a revived economy will be strong enough to grow itself out of a debt hole that has reached economically fatal levels. The illusion that a handful of giant tech companies can sustain economic growth, and that their shares deserve earnings multiple ranging from 35 (Apple) to 91 (Amazon), will come to be seen as one of the greatest episodes of mass folly in history. It is of a piece with the equally absurd notion that the Fed’s money-printing scam can sustain the illusion of prosperity indefinitely.
The smell of stock-distribution is as pungent as wood smoke these days, but you’ve got to give DaBoyz credit for levitating a million tons of swill while they work their special brand of magic and deception. Usually Wall Street is pushing the ‘Santa rally’ narrative hard at this time of year, always leavened by urgent speculation about how “green” Christmas will be. But Santa obviously won’t be making the rounds in 2020, especially in department stores where his beard would become a superspreader to rival the hydrogen bomb in killing power. Definitely not the Kris Kringle of our childhood. One holiday fixture that is certain to survive is endless TV showings of It’s a Wonderful Life, the Jimmy Stewart classic with a conclusion that could bliss out Jack the Ripper. Not any more, though — not since, metaphorically speaking, financier George Soros suited up to replace the no longer believable banker, George Bailey. Will there be anything about 2020 to look back on with nostalgia? If so, we are in for a very rough decade. A successful vaccine is everyone’s best hope at the moment for 2021, but few believe it will return things to normal. For in fact, given the rancid political climate and the vast swaths of the economy that have been laid waste, most of us are finding it difficult to even imagine what “normal” might be. Something will sustain us in any event, but that old standby, bread and circuses, is going to ring hollower than ever.
Rick’s Picks has tracked the Russell 2000 ever since it became apparent in mid-summer that the chimpanzees paid to throw your hard-earned money at a relative handful of stocks and invented themes had agreed to shovel the lion’s share of it into small-caps. It should be obvious by now, even to hard-core permabears, that the ballistic skew of the Russell index — and, in turn, all the others — is oblivious to such matters as concern us in our daily lives. America polity may be unraveling before our eyes, and a fresh wave of Covid-19 has already crushed hopes of an economic resurgence. But as long as the stock market is held buoyant by a practically limitless inflow of ginned-up capital from around the world, how could it possibly crash? Indeed, it cannot. And yet, charts like the one above allow us to at least imagine a top, even if we have no clue what could cause it. The chart makes clear that nothing is likely to stop IWM, an ETF proxy for the Russell 2000, from reaching the 184.73 target. But this Hidden Pivot resistance is sufficiently clear and compelling to suggest that it won’t be a pushover when bulls get there and want more. That is not to say IWM can’t pop through. But if it does, we’d have to concede that the small-caps, perhaps joined by FAANGs and other growthies that have been relatively quiet lately, are embarking on a blithe path higher that will see the Dow trading well above 30,000 by 2021. _______ UPDATE (Nov 18, 9:04 p.m.): A wave of selling hit late in the session, offering bears a rare breath of fresh air. Now let’s see if the scuzzballs who control the markets can reverse the mood on ‘turnaround ‘Tuesday, since a mere two days aloft did not give them much time to distribute stock ahead of the coming relapse in the economy. At this point any rally should be regarded as an opportunity to get short.
Biden, schmeiden. On Wall Street, it would seem, no one cares. Stocks are up substantially since the election even though the unsettled presidential race remains one of two unusually large elephants in the room. The other is the pandemic, which appears close to going out of control in some areas of the U.S. This, too, has yet to have any discernible impact on stocks. We see only evidence that no matter what the news, and however great the uncertainties that govern our lives, the inexorable flow of money into shares is simply too powerful and steady to abate. There was a time when the stock market supposedly hated uncertainty. By now, however, it is clear that investors have become inured to the unknown. Something else will undoubtedly unsettle them at some point, but we can rule out fear of the future. An invasion from Mars would probably fall off the front page in three days. It is in our personal lives that uncertainty is taking a heavy toll. If Biden assumes office and tightens the lockdown, it is foreseeable that many millions of Americans will take to the streets and disobey him. Look for an insurrection over mask-wearing to come first. One might think the question of whether masks have helped suppress the pandemic would be settled by now. But you would be wrong, for the question has been settled only politically: hard-core liberals wear masks in their own homes, in their cars and during sex, while conservatives disdain them and wear them only indoors and out of politeness. Don’t They Know? In the photo above, taken over the weekend in my hometown, Delray Beach, Florida, virtually no one is wearing a mask. The restaurants and sidewalks were packed, presumably with diners and pedestrians of all political persuasions. Don’t they know that Covid-19 is resurgent across America? They might reply, Not around here, bub. And yet, the camera doesn’t lie. If such a thing as a superspreader event exists, Atlantic Avenue in Delray on a Saturday night is it. The scene in the picture is the same as you would have witnessed on any Friday or Saturday night over the last several months. And yet, there has been no Covid outbreak here, nor in the rest of Florida. This is notwithstanding that the state’s Republican Governor, Ron DeSantis, has been one of the most permissive in the nation as far as letting business go on as usual. Do you think you know your facts about masks? Here are two sources to check your knowledge that draw opposite conclusions. The first is from Mercola, a meticulous purveyor of information on all things concerning personal health. Mercola musters considerable evidence that masks have had very little impact on the pandemic’s spread. Read it for yourself and decide. Then watch this remarkable 3-D video from the New York Times. It explains so clearly how masks do their job that you will be vexed to understand how Mercola could possibly be right. Such are the challenges we face in sorting fact from falsehood in the supposed Age of Information. _______ UPDATE (Nov 16, 10:30 a.m.): I stand corrected, for in fact, as a reader has pointed out, Florida’s infection rate has been edging toward a red-zone 10%. This implies that Delray’s weekend block parties could soon end. My impression that the spread of the virus was only moderate came from an easing of restrictions at that gated community where I live. The administrators have been super-cautious but eased the lockdown over the last several weeks. However, it would seem their rule changes lag county health statistics somewhat. Although they are trying to protect a population whose average age is near 70, they are struggling to balance this concern against the economic and social costs of shutting down amenities that include golf courses, dining rooms, swimming pools, a fitness center and all the rest.
Tech stocks have hit a wall, unable to remain afloat on a tide of stressful news. Although Wall Street would have us believe investors shouldn’t care who wins the election, this idea is preposterous. There is simply no way that a takeover of Capitol Hill by the Democrats could be perceived as good for business and the economy. But there’s a Catch-22 if Trump succeeds, since a court decision paving the way for a second term could gravely unsettle America for years to come. A vaccine remains a bullish wild card, as the mindless herd demonstrated on Monday. Pfizer announced a drug that supposedly has been 90% effective in trials, touching off the most powerful one-day rally in stock-market history. The clinical basis for the drug maker’s claim went largely unexplored at first, presumably because the stock market’s canny masters had every reason to avoid hard questions that might queer the celebratory mood . But doubts surfaced on Tuesday nonetheless, causing shares to extend Monday’s tech-led retreat. Tiredness seems likely to remain the market’s theme until after the election is settled, which could take as long as two months. Small-cap stocks may be raring to go because that is the ‘story’ the stock market’s masters have been hyping non-stop, but they will not get very far with the FAANGs and other insanely overbought lockdown winners weighing them down. Conclusive news of a truly effective vaccine could goose stocks into a parabola at any time of day or night. However, even a truly miraculous vaccine would not suffice to justify the sensational earnings multiples achieved by many stocks after the lockdown. This could present as promising an opportunity to “buy the rumor and sell the news” as a trader could hope for. _______ UPDATE (Nov 11, 6:35 p.m.): Stocks showed no particular strength Wednesday and appear to be under delicate distribution. Although shares often seem to rally on any kind of news whatsoever, the really good stuff that causes them to explode — i.e., an effective vaccine(!!!!!!!!) — will be timed for maximum effect. It’s hard to know at this point how often such news will come, but my guess is that an interval of at least 15-20 days must pass to optimize their credibility (such as it is) and effect. _______ UPDATE (Nov 12, 9:42 p.m.): There was a time not long ago when we assumed stocks were coiling for a strike whenever they looked tired. These days, however, the tiredness seems real, even if DaBoyz are unlikely to pull the plug until they’ve had at least a few more days to distribute stock before the broad averages recede substantially from Monday’s crazed peak.