This is what happens when our leaders play God
Ever since I first came across the growing anxiety over the ‘climate change’ meme early this century, one of the most remarkable features has been the escalating growth of the confidence (hubris?) of our leaders to claim to be able to alter the natural trends in the earth’s climate using shedloads of taxpayers money and laying down ever more draconian laws on the populace to change their behaviour.
I confess the latest wheeze to knock me over has been a new UK law to order car manufacturers to sell a certain production of their output in EVs – or be fined £15,000 for every petrol/diesel vehicle they sell under their EV quota.
Has anyone else noticed that that this is a heinous crime against our free will? Stalin would be proud!
So if they cannot force us to change our minds over unaffordable EVs and heat pumps (which they are failing in) with taxpayer subsidy/grant bribes, they are resorting to guns to the heads of the vehicle manufacturers. And we are supposed to be a free country!
A simple question – if EVs and heat pumps are not wanted by a large chunk of society, can they be forced on us to satisfy the orders of our leaders to reach their arbitrary targets? This smacks of the old doomed Soviet tractor fiasco that lead to the downfall of the Soviet regime. Net Zero has a very real prospect of being the West’s tractor downfall – and on a much larger scale.
Of course, the elephantine irony in all of this is that these Net Zero goals are there ostensibly to fight a war against innocent CO2 – an essential plant food (check with your school biology notes). As many former ‘greens’ are now admitting, there is no ‘climate emergency’.
Oh, and China and India keep building coal power plants so what we do in our little island is weeing into the wind.
The reason I bring all of this up is not to fill my blog with a polemic on the ‘green’ movement, but to suggest that the sheer madness of it will ensure a rapid progress of the bear market into a weakening economy.
Much of this gargantuan ‘green’ investment will prove to be as water down the drain – wasted with companies unable to make profits (such as hydrogen and carbon capture) and with bond yields rising fast, many companies needing to seek expensive capital will be out of luck. Already, the bankruptcy rate is rising (from a very low base when free money was available to all and sundry). This will escalate.
In a word – the mammoth wasteful Net Zero schemes will hasten the arrival of the coming recession/depression. Rising bond yields will ensure that. And the falling stock markets are signalling the very same.
US indexes are in deep Elliott third waves down
From the July Elliott wave 2 tops, the S&P has fallen sharply along with Treasuries. The fact that both are declining in unison is a sure sign of trouble ahead in the economy. But late last week, indexes had reached one of my short term targets on an important tramline and in a note to VIP Traders Club members on Thursday morning, I posted this chart as one of the available short term options:
On Monday, it had hit a major target on my lower tramline (with the usual overshoot). With short term bearish sentiment overdone, I judged the odds favoured a relief bounce/rally. And because the low is likely an Elliott third wave, the coming bounce could be labelled as a fourth wave prior to a move to new lows in wave 5.
And the ideal form of that fourth wave would be a three a-b-c form. Let’s see how this played out yesterday…..
….and lo and behold yesterday’s payrolls report was initially sold, but shares then staged a vigorous rally into the close to give me my a-b-c. Beautiful! Here is the updated chart
Elliott wave ‘b’ was the initial payrolls sell-off and ‘c’ the move up in Elliott wave 4 – and that validated my Thursday roadmap. Nice.
I am sure you can see how the Elliott wave model can sometimes offer precise short term (as well as medium and long term) forecasts with high accuracy – before the event, of course.
I am always amused by the vast majority of market reports that explain in very convincing terms what has just occurred after the event – but always in terms of the data/news and never in Elliott wave terms. We Elliotticians are in the vast minority – and I want to keep it that way!
Why? Because if more become proficient in Elliott wave analysis, it would most certainly lose its effectiveness. And I would likely be out of a job!
But that change would involve abandoning old-established beliefs where the data and news drives the markets in a mechanical cause-and effect way. This is reinforced by all of the media who have to fill acres of space with entertaining copy. Most of us are hard-wired to believe it is the Fed that is the Wizard of Oz who makes everything happen magically. All stories revolve around what the Fed decides.
Only when you have a little terrier (it must be a terrier!) who drags back the curtain to reveal a mere mortal manipulating the smoke and mirrors that you see the reality. There is no Wizard! We love fairy stories and whole fortunes and reputations have been built on them.
But they are no basis for designing a bridge!
As I have shown time and time again, the Fed follows the market on interest rates. It never leads it. Powell certainly is not a Wizard, merely a human with orders to follow.
Incidentally, since at least the Harry Potter series and the Lord of the Rings became best sellers, the Fantasy genre in books and films has been supreme and hugely popular. Is it mere coincidence that at the same time, the fantasy of Net Zero has ruled us? Hmm.
In terms of popular culture – which is always a litmus test of the larger economic and social trends – the recent hit movie Barbie is yet another fantasy that may signal fantasy exhaustion. As the bear markets grind on, I am confident we will see a move away from Fantasy and a return to the darker film themes and perhaps even a revival of film noir that flourished in the q930s and 1940s during the darkest days of WW2. Hopefully in black and white!
Meanwhile back in the real word….
Fossil fuels account for over 80% of global demand and NatGas is a prime component and will continue to be so for some time.
Why? Because it is much cheaper and very available than the ‘renewables’ of wind and solar. Domestic UK NatGas energy price is about 1/4 of the equivalent ‘renewable’ electricity price (which our glorious leaders are forcing us to convert to).
When Russia invaded Ukraine, it was cut off from supplying the West and its supply was cut leading to the Russia Rally which members took full advantage of. Prices shot up from 20 to 100 in August last year. But with the inevitable over-supply, prices shot back down to the 20 area again for a typical commodity round trip.
And they have been dragging around the lows pretty much off the MSM radar for months but we have been slowly building long positions anticipating another bull run. And now one of Australia’s biggest LNG facilities is mired in strike action and that has put a rocket under the market this week.
Even with this week’s surge above the critical 30 resistance, it still trades well under the first Fib retracement at 23%. It has much further upside potential.
At the same time, Crude is in a well-flagged correction as it moves down off my 94 target where we took profits. Of course, when it did trade at the 94 area, the cries calling for $100, $150 and beyond were off the scale. And that was another good reason to bank great profits.
WTI is now trading at $82 – down $12 (13%) in about a week which is rather steep. I am not sure whether this is just a correction to the larger bull trend or the start of something more bearish. After all, if economies are turning lower as I suspect, will oil demand weaken? After all, the oil complex got a major hit last week when gasoline demand fell heavily.
While I am giving the benefit of the doubt at the moment to the bull case – as OPEC+ still holds a few aces and the US Strategic Reserves are empty and need filling – I am wary of a deeper correction leading to a more protracted bear slide.
Bond losses are getting extreme
This week, the MSM has discovered the bond market! While they are usually laser focussed on shares, bonds are rarely covered – until they threaten to blow shares up, that is. And that vision was on prominent display in recent major headlines. So true to form, I am asking whether fixed interest is due a major bounce?
We have been successfully trading the US Treasuries for VIP Traders Club and riding the savage beat trend and this is what I posted to members on Tuesday:
Like many others (especially stock bulls), I did not expect this market to plunge to such low levels (latest 112.50) and I regret not staying with our short trades. I honestly cannot see much hope for the upside until my 110 target area is reached.
And yesterday, the T-Bond did hit my 110 target and then some with a low at 109 yesterday. So can I see any hope for a rally/bounce from here?
Here is the incredible rally in yields off the Free Money Low of December 2021 of the 30-yr T-Bond yield:
That low offered a yield of only 1.6% and now with 5% yields, many investors who bought there are stuck with them as they are only worth about 50%. Yes, US Treasuries now pay back 50% of face value on those bonds when sold in the market. And they still receive only 1.6% of capital invested while inflation remains high.
And that includes many institutions such as banks and pension/insurance companies. Marking to market would make many bankrupt. So of course, they don’t mark to market. In difficulties they let central banks and now the taxpaying public make up the losses. Watch this space for push-backs to come.
I have a very bullish take on this chart which implies much higher yields to come – and a much higher dollar.
Of course, this is an accident waiting to happen with the banks as house prices are now falling and repossessions loom into a falling market. Another banking crisis is almost certain – and the Fed will be powerless to stop it if they pull another QE scheme to save them. The can is getting real beat up and we are running out of road.
Investors have seen what recent previous QEs have done to inflation and the dollar – and they may not have long memories, but they do remember the Covid Crash. Their current stance is hawkish and may hike rates November 1 at their next meeting. At least that is consensus for nw.
Any Fed pivot away would likely signal a recession as credit spreads tighten with short rates narrowing to close in on long rates. That is always a recession signal.
Yes folks, fasten your seatbelts, this is going to be a bumpy ride!