Can we really afford politicians?

In recent years the decisions taken by the Western political elite have become ever more damaging to their public’s best interests (except for those on the gravy trains, of course). But there seems to be a major crisis of public confidence coming to a head in many nations that may well develop into outright rejection of existing politics – and even violent actions against the ‘establishment’.

Mine is a financial and market blog and I usually avoid the political but such considerations are extremely relevant when trying to forecast markets. After all, stock markets rarely flourish when there are riots in the streets – as there are in Sri Lanka.

And what is happening in that country with the forced ousting of the kleptocracy by waves of people storming government buildings could well set an example for other countries. The uprising in Sri Lanka has been prompted by the enormous increase in the prices of goods most people pay from fuel to basic foodstuffs. And they blame the government of course.

Can you imagine something similar in Europe? Most nations are averse to rioting in the streets – except the French of course (with the Netherlands farmers now coming a close second) – but this winter, if the energy crisis deepens and if Russia shuts off the gas supplies, the shock of the enormous utility bills will surely hit where it hurts.

And the energy crisis has highlighted the utter foolishness of the Net Zero policies that I have highlighted in recent blogs. And here in Europe, even the leader of the ‘green’ revolution, Germany, is ramping up its use of coal for power generation as some regions are suffering from electricity rationing already – and the winter is yet to come and Putin has yet to shut off gas supplies.

Politicians have been caught up in the ‘green’ energy mania that has swept the Western world in the guise of ‘saving the planet’. Now Germany is importing a lot more coal to burn for electricity generation as rationing has now appeared in some regions of the country. And the politicians are telling everyone they must take shorter showers and to take baths together. Hmm.

Yesterday, they were telling everyone to ditch their gas boilers and install (expensive and largely inefficient) heat pumps. Now they are urging oil, gas and coal producers to keep drilling and digging as they see their voters turn away!

Do they not see the utter hypocrisy? No, they probably don’t – and that is because they want to keep their jobs to lord it over us ‘little people’ who pay all the huge taxes they use to distribute to their friends and self=selected groups. But the pips are starting to squeak.

Here in the UK a new ‘leader’ is being decided. Is it a circus or a zoo? I can’t decide. As ever, lots of big promises on tax. Naturally, the contenders are now deriding the high tax policy that they had previously supported only a few days ago. Suddenly, they are seeing the error of their ways. It’s almost a miracle!

As the bear market progresses, the level of anger in Europe towards their ‘leaders’ will grow. It should re-emerge in France first as the Jilets Jaunes come out of the woodwork with a new cause. Remember, they protested the high fuel costs for their vehicles in 2018. Now they can add the high food prices.

And in the Netherlands, farmers are blockading highways in protest at the draconian new law to cap nitrogen emissions from their fertilizer use. Yes, politicians have declared war on its citizens. I think I know how that will end.

Stocks poised for massive decline

I was fortunate in nailing the great US bull market tops in November and January and since then, stocks have lost a lot of ground. So far so good. But shares do not move in straight lines as we all know. Locating market highs and lows takes a mixture of luck and skill. And I have been lucky enough to locate most of them on the way down.

This is the roadmap I posted to Club members yesterday morning:

In just one chart, I have laid out my case to expect a major leg down now. And with Wednesday’s US CPI data, investors seem to agree that the market should be lower. Remember, it is not the economic data that drives the market – a bear market draws out the weak economic data.

Is a recession inevitable?

It certainly seems so and one clue is the action in the Crude Oil market. Recall, we have been making major profits during the bull run since last year and when the market made the $121 high last month, I have been increasingly cautious about further progress. The rally phase was being supported by the very clear solid support line joining major lows.

But when the market began its decline off the $121 high it managed to break below that line on 5 July with a massive record daily $16 plunge. That action turned the line into a line of resistance. And that was a very clear message – the bull had expired (for now)!

And that plunge was followed by the usual partial recovery – and that terminated right at the underside of the resistance line to plant a traditional kiss. And after a kiss comes – a Scalded Cat Bounce which we are working through currently.

Club members have positioned short to take advantage of what I see as an ongoing bear phase that could extend to $80 and even below.

Of course, a declining oil market would help reduce inflationary pressures but it also implies reduced demand from weakening economies as they enter recessions.

And recessions can turn into depressions – and will.

That has been my over-riding position for some time as long time readers will know. How else can a lengthy period of QE ‘funny money’ with impossibly low interest rates end? The steep rise in asset prices – such as the 120% gain in the S&P off the Corona Crash low in less than two years – was a clear demonstration that the fantasy world that markets had entered would end when investors would wake up in the real world of rising rates, inflation and unsustainable growth projections.

And because the final phase of the multi-decade bull market had been built on this fantasy world, the Days of Reckoning will be swift and deep.

Investors are still pinning their faith in the Fed who they believe can manage the economy and asset prices (they can’t). They got well behind the curve keeping rates at the lower bound when inflationary pressures were already building, as I pointed out last year). Now they are well ahead of the curve with talk of 100 bps hikes next month all the while commodity prices are plunging (see Crude chart).

So we have a perfect setup for a recession – and then a depression. The Fed is hiking into a weakening economy. This won’t end well.

When they finally realise their second error, it will be too late. If they cut rates in the Autumn or early next year, stocks will be a lot lower. And what credibility would they have left having made two major policy errors in succession? Zip is my forecast.

________________________________________________________

HUGE PROFIT OPPORTUNITIES LIE DIRECTLY AHEAD – WILL YOU TAKE THEM?

Huge  profits await nimble and canny traders in the upcoming major bear trend in shares.  But navigating the inevitable sharp swings will require expertise. Even in a strong trend, it is possible to lose money even if your overall view is correct!  As in most of life, timing is (almost) everything.

Come join us as a member of the VIP Traders Club as we navigate the treacherous waters of the major markets.  You will receive my daily Trade Alerts Monday-Friday where I cover most of the main markets from stock indexes to currencies to metals and commodities.  We have taken major profits during the bull runs and now waiting for the next opportunities.

Become a member of the VIP Traders Club  here

___________________________________________________________

The Almighty Dollar rides high – but for how much longer?

Probably the most loved trade today is long dollar especially against the yen. And no wonder, the Fed is ramping up rates much higher than other central banks (Japan is not joining that party but could at any time!).

Here are my wave labels and shows the incredible accelerating ascent off the January2021lows.

We are currently in the final fifth wave and in a near-vertical section. From the recent 15 trading days, only three have been small down days. And the DSI on the euro has registered less than 10 for the last few days. That is a near record low.

Thus, the end is nigh! And I will be on high alert for signs of the turn – which should be a doozy.