Watch Out for Quicksand

What did you always see in movies with a quicksand scene?  Hero and fellow adventurer plodding along through the forest.  Hopeful and intent on making it to the lost temple of treasure, but cautious for danger.  Then all of a sudden…up to their ribs in quicksand and a rapid descent into panic.

Well that’s how the stock markets kind of feel right now, except there’s an unusual amount of calm.  I get the sense that an air pocket can develop to rip 8% to 10% of value from equities.  It would be fast and temporary.  I firmly believe the stock markets will keep moving upward and I actually think we’re going to have a strong Fall and Winter.

I don’t have any charts or article links to share; just a gut feel backed by anecdotal evidence.  Let’s briefly review the negative factors that one would have surmised to have a higher impact on the broad stock market:

– Repo rates flash-spike up to 10%

– Momentum Factor crashes with Value Factor spiking

– Saudi oil processing plant attacked affecting 5% of total world output

– The 10yr. Treasury took a hard spike downwards

– Fed and ECB are cutting rates

I mean all of that just happened in the last 2 weeks and the closing range on a weekly chart in the S&P 500 is right around just 1%.  It doesn’t feel right.  I suspect we could see a delayed reaction to these negatives, which will be exacerbated by the algos.  That’s how we could see a 2-week down-spike.

All the Bears will claim they were right within that first week and the next GFC is surely here.  Then the second week traps the Bears as the Bulls take over by the end of that second week.  I think if we see action like that then it sets the stage for a V-bounce and the start of the next leg in this Bull market to new highs over the holidays.

Those negative events were enough to halt the down-move in treasuries and stave off a correction in gold, but I think that’s also temporary.  Instead of a flight to safety placing a bid underneath longer Treasuries and gold, we could see a flight to cash.

Again, this is only a gut feeling but it keeps nagging me right now.  If this gut feeling becomes a reality, it could look something like this.

SPX Possibile Air Pocket (Sept. 2019)

Plenty of ways to play that action alone in equities but when you toss in Treasuries and precious metals, it could be a trader’s delight.

Oh, and one last thing on the repo rate spike.  It’s not just a little plumbing issue. That spike up to 10% mattered.  It’s a tell.  If it didn’t matter why exactly would PIMCO say,

In our view, the repurchase (repo) market, where banks and broker-dealers can obtain overnight collateralized loans from intermediaries, is a critical barometer of the health of the financial markets.

Tread lightly…at least temporarily.

Hey Gold, Don’t Get Cocky!

Gold Fever - Article Header

Seen this movie?  If not, it appears to be starting another theatrical run.

With the recent action in gold, the precious metals bugs are all stirred up.  Price action has been constructive.  Big time asset management names are mentioning it and the metal is definitely conveying a message.  New songbirds are putting their price calls out there for short-term and long-term destinations.  The old songbirds are putting their same old calls out there as they suffer permanently from the fever.

There’s no fever like gold fever, and I’m an expert in the symptoms.

We’re already seeing the $10,000 and up per oz. calls for gold.  What’s funny is you see the same old reasons for why precious metals are going to boom.  Everybody was selling the same handful of points in the last gold bull run and those same points are being tossed out there again as if they have meaning or truth.

– Negative real interest rates

– Excessive debt loads

– Accommodating monetary policy by central banks

– US Dollar losing value via debasement

– Inflation expectations

– Supply shortcomings

This is folly.  These are not reasons for anything; merely convenient sales pitches that still work on the zealous subset of speculators that are looking for either a reason to stay devoted to the precious metals or believe an amazing amount of money will be made by a small speculation.

From a technical analysis standpoint, it’s time for a rally and the price action hasn’t disappointed thus far.  However, technical analysis has virtually no merit any more due to the advent of the internet.  This has been statistically proven.  Tape-reading still has merit in conjunction with technical analysis and fundamental analysis, but it takes real talent and luck to fight the machines.  Here’s a Captain Obvious chart of gold proving higher prices in the making.

Snarky Gold Chart (7-13-2019)

But there’s only one thing that could potentially drive the price of gold and the precious metals to those high price levels so blithely forecasted.  Here it is in plain, bold English:

A HIGH PERCENTAGE LOSS OF RESERVE STATUS IN THE USD

That’s it.  I believe that to be the only driver that will get gold up over $5,000/oz. or higher.  Something in the order of the USD losing perhaps 35% or more of it’s reserve status which will coincide with decreased use of dollar-settlement in international trade.  Or said another way, chaos.  Because if the rest of the world decides to shift part of the USD’s reserve status to another currency whether it’s gold, Bitcoin, SDR, yuan, etc.; you can bet those in power in the US will be wreaking havoc as a result.  This will be adjoined to the financial/economic chaos that will already be in place.

There still exists old-world faith in the precious metals, and blockchain currencies do not have enough cumulative faith by investors to reel in allocation decisions.  This is the path for significantly higher prices in gold, silver, and the PGM complex; potentially even for the commodity complex.

Regime changes in currency reserves are not fast.  They don’t just happen like a stock market correction.  Many powerful and wealthy nations have a vested interest in the USD maintaining it’s ultimate reserve status.  Just bear that in mind as we watch the dynamics between all asset classes, markets, economies, and countries play out in real time going forward.

It’s tough to visualize if you can’t foresee a world where the USD loses place and face.  But hell, don’t take my word for it.  Google and consider the opinions about the subject of some of the most powerful financial insiders in the world:  Larry Fink – Head of Blackrock, Ray Dalio – Largest principal in the largest hedge fund in the world, and Mark Carney – Head of the Bank of England.

Ain’t no fever like gold fever.  Keep your wits goldbugs.

They Just Can’t Get Out of Their Own Way

Image result for WTF Well Fargo

You bank at Wells Fargo?  You enjoyed a couple of days of online outages and app malfunction.  Service has since been restored.  It only took them a few days; no biggie.  What’s the excuse this time for Wells Fargo pissing off customers?

From a Feb. 7th Fast Company article here’s a few dubious claims updates:

Update 3: Wells Fargo released a new statement hoping to quell speculation that the technical issues are the result of a cyberattack:

“We want our customers to know that this is a contained issue affecting one of our facilities, and not due to any cybersecurity event or attack. We apologize for the inconvenience caused by these system issues, and any Wells Fargo fees incurred as a result of these issues will be.

Update 2: After several hours, the bank said it is still experiencing system issues due to a “power shutdown at one of our facilities, initiated after smoke was detected following routine maintenance.”

“We apologize for the inconvenience caused by these system issues, and we want our customers to know that any Wells Fargo fees incurred as a result of these issues will be reversed.”

Update 1: The bank said in a Thursday afternoon tweet the outage was related to a “power shutdown” after “smoke was detected” at a Wells Fargo facility.

We’re experiencing system issues due to a power shutdown at one of our facilities, initiated after smoke was detected following routine maintenance. We’re working to restore services as soon as possible. We apologize for the inconvenience.

— Wells Fargo (@WellsFargo) February 7, 2019

Margin Rich here again.  You believe what they’re reporting about not a cyber-attack?  I don’t for one second.  Wells Fargo has proven, time and again, to employ liars, cheaters, and scam artists.  Somehow this time they’re telling the truth?  Prove it.  Otherwise, WF needs to tighten up their security game.  That’s the problem with banks.  They treat the function of capital custodianship as a right, not a privilege.  Never forget that.


Sneaky Suspicion

Today, tomorrow, and Monday.  That’s all we have left of the 2018 year in equities.  This bipolar market has even the professionals pulling their hair out; Monday’s despair vs. Wednesday’s relief.

Here’s how I think the S&P500 plays out to end 2018 and you can take advantage whether you’re a short-term trader or a long-term investor.  These are just gut-guesses that also influence my own decision-making process.

Thursday (12/27/2018) – I suspect we’ll get a flattish (up 0.25% to 0.50%) day.  But the pros are smart and they’re going to harvest their tax losses and perhaps perform some year-end window dressing

Friday (12/28/2018) – Down between 1.25% and 2.8%.  This will freak out entrants who will feel they waded back in too early.

Monday (12/31/2018) – Down 3.5% to 4.9% and we erase Wednesday’s recovery.

I can easily see the skilled timers across all genres of the investor universe using the unskilled timers for lipstick-on-pig returns to dress up their 2018 performance against the damage of Q4. 

Then get ready for a great H1 2019.

Another Bounce or Not

Hmmmm.  What to do in a market like this?

For your long portfolios, my advice would be to sit tight.  The odds are strong that we’re in a multi-week bounce before another little shakeout.

SPX Thru 2018 Holidays (Nov. 2018)

I’d suggest getting long after the next move downward.  Market behavior suggests a rally into 2019.  It could be the start of the final leg of the melt-up as “late-cycle” keeps getting bandied about out there.  Over the past few years, the drill seems to be a quick move down followed by the exhaustion-bounce followed by another move downward before regaining the up-trend (weekly charts).

For the contrarians, it’s hard not to look at China and energy as two obvious areas for medium-term plays.  If you play in the markets at all, I don’t need to throw up charts to illustrate the performance of both sectors of late.  Tencent and JD could be easy moneymakers.  And the energy toll roads can provide a nice yield along with cap. gains on an oil bounce over the ensuing months.

EPD has the infrastructure footprint and financial efficiencies that begs for yield-starved investors who’ve been waiting for a better opportunity for entry.  However, the company’s price remains quite steady in the $20 to $30 range.

Oil’s price action looks exhaustive.  Fundamentals appear to bear out an inexplicable magnitude of this sell-off.  If institutional traders on the wrong side are able to quickly offload positions, then there may be enough support by energy bulls to resume an up-trend without extreme volatility.  I remind energy traders of what we saw in H2 of 2016.

I liked the Starbucks story, but it quickly got white-hot before I could position with my long portfolios.

SBUX Retrace (Nov. 2018)

Based on the trajectory over the last several weeks, it wouldn’t surprise me to see a retrace down to the $56 – $58 range.  That’s a good spot to get positioned if you’ve been eyeballing this world-class caffeinator.

In the quasi-cash-equivalent area, muni-CEFs have presented recent value with their widened NAV discounts.  The discounts have come off a few points as investors have taken advantage of the historically free money and positioned accordingly.  The big question mark is interest rates.

Does the Fed raise rates next month?  If so, that could renew selling action in muni-CEFs and widen discounts again.

Interest rate tape reading has rates looking a little toppy.  Not like they’re going to topple over as we know the Fed will raise rates which will force support.  But still, I like interest rate-sensitive funds here to drive a little yield for a bit in place of sitting on excess cash.

          IIM Current NAV Discount (Nov. 2018)

          JPS Current NAV Discount (Nov. 2018)

Remember, these aren’t long-term investments.  We’re talking about using them as cash-equivalents, but their volatility makes them decidedly un-cash-equivalent.  We’re speculating on additional points on your money earned relatively conservatively.  Mind your stops.  Protection first.