The shoeshine boys are back!

The big event of the past week was undoubtedly the much-watched US non-farms jobs report on Thursday. It was a real shocker with a huge ‘beat’ to the upside. Stocks surged immediately on the news with the Nasdaq making another ATH (while all other major indexes markedly did not).

But with the pandemic playing havoc with accurate data collection, can we really trust the numbers? Certainly, the machine-learning algos can, as can the teenage Robinhood traders! But can rational humans please step forward and note that in the data, the claimed numbers ‘unemployed’ were significantly less than the numbers claiming unemployment benefits! How can that be? Unless many are gaming the system – or the definitions of ‘unemployed’ are too vague to mean anything.

No matter – the momentum players and the algos filled their boots as they continue to sniff a rapid economic recovery as lockdowns are being lifted.

But now the impressive ‘data’ is out, can this be the final capitulation to the manic bullishness that has prevailed for so long? Surely, only a miraculous recovery now being priced in can satisfy current stock valuations and any disappointment would very likely send the teenage Robinhood traders heading for the hills.

Once in a while I come across some revealing charts that show in one picture some stark facts. This one points to deflation ahead, not the inflation/hyper-inflation dreamed of by so many pundits many of whom believe Gold is heading for $3,000 (it has likely topped and is heading lower).

With the velocity of money heading south in this pandemic, so will go the CPI with consumer prices falling. Of course, some prices will rise in the mix. I see the price of puppies are in a strong bull market – but thankfully, they are not included in the basket of goods and services! (They are in their .own basket, though).

And here is a plot of stock prices against consumer confidence

They track each other very closely as the correlation conforms with my belief that it is social mood that determines stock prices. A positive mood equals rising stocks. But with stock prices still elevated and consumer sentiment depressed, the yawning gap sticks out like a sore thumb. They will certainly come together again at some stage – and although confidence may improve as lockdowns are eased, it is highly unlikely it will reach the levels seen earlier. So something has to give.

There was a lot of talk eleven years ago during the financial crash of ‘zombie’ firms. These are firms being kept on life support by the actions of the Fed and the government providing them with loans/grants so as to avoid bankruptcy – and keep jobs alive. They could not survive in the normal world of commercial competition. Well, after those eleven years and squillions in QE and now the pandemic hand-outs, their numbers keep rising!

Now, as many as 18% of all US firms have been zombie-fied whose debt payments exceed their profits. This, after the loans/grants and other schemes – at record low interest rates, please note – have been offered. To me, that is an astounding figure, especially when stocks are near All Time Highs.

It points to the biggest elephant in the room – too much debt!

The forward P/E ratio of the S&P 500 is still advancing and now sits around a nose-bleed 23. Yes, such manic unreality can persist for a long time, but not for ever. So, was the frankly unbelievable unemployment data last week marking the top in stocks? Was it the bell that is soundlessly rung at the top?

The most-loved sector is, of course, the big name tech and bio issues such as the FAANGS. Last week I covered Facebook and made a case it is at or near a top.

But with the DSI bullish reading at a record 92%, the decline is fast approaching – and it will be very swift.

Here is the Nasdaq

and if my labels are correct, we should see a pull-back next week to below my dark blue trendline to validate the overshoot. Remember, overshoots often mark buying climaxes. We shall see.

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Will Robinhood steal from the poor and give to the rich?

The curious phenomenon of the US commission-free stock trading platform Robinhood is attracting much attention – and no wonder! With the stock markets in full bullish flow – especially the Nasdaq index that is making new ATHs almost daily – the teenagers and millennials (who have plenty of time on their hands with money (in the form of Uncle Sam’s support cheques) to spend and nowhere to spend it) have taken up the ‘can’t lose’ thrill of trading stocks.

I believe it displays in the clearest possible terms the extreme manic bullishness towards stocks now prevailing.

Just as night follows day, when a market is in a well-established major trend, in its final flourish it attracts the most amateur of ‘investors’ who use their ruler and extrapolate the price trend ever upwards to infinity. And this always occurs as the trend is about to terminate.

And there is no group more gullible than teenagers and the young – especially when they discover something new and exciting in tech. They are today’s equivalent to the 1920s shoeshine boys (see picture above). The computer game-like attraction of the Robinhood platform attracts them as moths to a flame.

This chart of the exploding army of such hopefuls on the platform tells not a bullish story – but a very bearish one

chart courtesy www.elliottwave.com

Note that the Dow/S&P peaked in February, yet the platform still attracted an exploding army of hopeful as they read that ‘buying the dip’ is a sure fire way to investing fortune.

And these day-trading punters are not alone. Even the pros have now jumped on the bandwagon with Call option buying at levels last seen in 2000 – just prior to the Dotcom bust.

But as we more experienced observers know, financial markets exist to extract as much money from the least experienced participants as possible. This time, that will include the pros. You can quote me on that.

Modern Money Theory rears its head

It is fashionable these days for some to resurrect MMT to explain why the record high debt levels doesn’t matter in the economy. After all, we owe government debt to ourselves, don’t we?

Of course, because this wrong-headed theory always appears when debt levels are sky high while stocks prices remain elevated, many can rationalise the bull trend in bonds and stocks which the Fed supposedly has manipulated. Here is a rational explanation of why this Alice in Wonderland world is destined to come apart at the seams:

Most feet-on-the-ground observers know that this house of cards will topple over at some point – and that time may not be too far away.

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REQUEST FOR EXPRESSIONS OF INTEREST

Over the years, many of my followers have asked if I would start a trading fund where investors could participate in the major trends I see coming, especially the huge crash ahead in stocks. So now, I am ready to explore this idea as time is getting tight to catch the best opportunities.

We will be spread betting the major stock indexes only and using Professional margins. My aim will be to hold positions for the long term (1-2 years).

Please email me at ttburford@gmail.com if you are interested and would like more information. Thanks.

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