We are transitioning – but into what?
Are you thinking what I’m thinking about the craziness of today’s Western societies (and markets)? Last week I commented that the world of finance is bizarre when bad news is good. This was demonstrated once again last week when the US job openings data cane in very weak and stocks rallied in the apparent belief that the Fed must now step in a ‘stimulate’ jobs and the economy by lowering rates.
But as I have shown over and over, the Fed follows the market, it never leads it. If the market sets rates higher, the Fed will puppy-like follow with a lag. And the trend remains up on that front.
Of course, this jobs data has been revised down later but the damage had been done and Biden can continue to claim a strong economy. The later revisions will go mostly unnoticed.
This is another example (among many) of the extreme politicisation of just about everything today (yes, I am looking at you ‘Climate Emergency’).
And I have almost become inured to the headlines about gender, but this one had me spluttering in my coffee (again): “Invent your own gender – California Governor Newsom tells schools they are on a gender journey“.
Yes, I know California has a well-deserved reputation of being the genesis of some pretty whacky ideas, but this one takes the cookie does it not?
When the young are encouraged to change gender and self-identify as a cat, when shoplifting and other crimes go unpunished, when the young and the gullible are brainwashed into believing the earth is on fire and that CO2 is evil, when public trust in the institutions of state including the police are at all-time lows – then something is awry with society.
And here in the UK we are suddenly seeing a major French-style vandalism rebellion over London’s ULEZ. This strength of anti-establishment feeling is virtually unknown in the UK – the last major example being Thatcher’s doomed poll tax riots of 30 or so years ago. The British usually act as sheep as the state ratchets up the constant pressure on taxes and restrictions of all kinds. Remember 1984? Big Brother is watching you! From all the CCTV cameras splayed around the country.
So is it really a free country, as is so often quoted? Are our freedoms being eroded?
So what has all this got to do with the financial markets, you may ask? The growing turmoil in society is a mark of the end of an era from a period where the rules were known and generally obeyed and trusted as being in the general interest of society. Citizens knew what were the limits of behaviour. But today, rules are being overturned and it is chaos that rules. This will deepen as individualism spreads.
This will be reflected in the markets where previously, wealth was built by investing in financial assets of stocks and bonds. We are now moving into a new era where wealth is being destroyed and safety becomes paramount, not risk taking. This trend is just getting started.
We are transitioning (!) from an Age of Reason to an Age of Unreason (irrationality). It’s a me, me, me society and it is an individual’s feelings that are paramount, not what is best for society (or even true). That is why today’s culture of victimhood is ascendant.
And why our major institutions (including the NHS above all) are failing society badly. They now exist for the sole benefit of the managers and against the interests of the public who are paying the taxes under duress to support it all. And rewards for failure rules. Who today can claim we get good value for our record high taxes?
The socialist state has taken over many of the responsibilities previously left to families and neighbours. Yes, we have the Bank of Mum and Dad helping their offspring get on the insanely over-priced housing ladder, but today even the Tories are more socialist than Labour with their tax-and-spend policies. Not a fag paper between them!
All of this mayhem is down to one basic change – since the 1960s, Western societies have started to abandon traditional values of right and wrong, of truth and falsehood. Now, it is the children that run households often without boundaries. So-called ‘progressive’ values have taken over from the traditional adult/children relationships.
Fathers and men in general have become infantilised and/or feminised. Men now use beauty products and are encouraged to show their feelings That is a radical change from the past.
And don’t get me started on the decline in educational standards which teaches that the scientific method is optional and discourages critical thinking. Everyone must win a prize! Ruthless competition is out. So is meritocracy. Schools have become sources of anti-capitalist propaganda especially as it promotes the false ‘climate emergency’.
Yes, we are in a major societal transition period which I believe will intensify. I have no idea where we are heading but when the great bear market resumes, things will definitely get much uglier for most.
And for now, we are living in an increasingly Woke World.
So where are financial markets heading?
Financial markets depend solely on the confidence of investors/traders. And crucially, asset values depend on that same confidence. As confidence waxes and wanes, so do their values in our fiat currency.
I have shown over and over that markets top out when positive conditions appear unstoppable (and vice versa). Recall the great Joe Granville’s maxim: When everybody believes something is obvious, it is obviously wrong.
That is why great human movements always fail when all are signed up either voluntarily or by force. The fall of the Soviet Union comes to mind.
So now I have to ask: since we are in a chaotic upside-down phase of society and markets, can we disregard the old rules that have determined market action to date? Can we throw away our tramlines, our Fibs and our Elliott waves that have been so useful to us?
We know that stocks – especially Big Tech – have achieved huge lop-sided valuations on the basis that the AI ‘revolution’ will boost values. If that is the case, will earnings have to be forever rising to justify these valuations, or will investors keep buying regardless? Will these stocks always keep going up forever with only minor pull-backs as so many investors apparently believe? And can we keep ignoring rising interest rates?
Here is an interesting chart of how US stocks have out-performed their global peers by a huge margin
And at the top of the asset pyramid, here is how the Magnificent Seven are dominating the world
Does this look a tad lop-sided to you in favour of the Big Tech shares?
But there are plenty of shares that are being left behind that do not make the MSM headlines -here is an interesting chart of the share performance of those tech shares that generate no operating profit (but lots of dwindling hope):
Ouch! I would say they are in a definite bear trend that is not over. Here, the Elliott wave model definitely hasn’t expired!
One concrete expression of the current complacency towards a possible crash in the high-flyers is the behaviour of VIX the Fear Index. It remains in the basement as investors see no need for downside protection. Yet.
With all of my dark thoughts that the old market rules may no longer work, am I ready to throw in the towel and surrender?
Not on your life! I may no longer be considered a trading wonderkind – to put it mildly – but I have seen just about everything in the markets and have lived through extremes before and they all end in the same way. History may not repeat but it does rhyme.
Incidentally, if you have a longer range vision, accumulating small packets of VIX should work out nicely when shares do resume their decline.
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Crude Oil is set to explode (up)
Remember just over two years ago when the lockdowns brought about a massive glut of supplies so that the stuff was not just given away but suppliers actually paid end users to cart it away – please! Storage tanks were over-flowing but the wells could not easily be shut down temporarily.
How times have changed! Now we are facing shortfalls in supply caused by Western governments’ War of Fossil. Current US prices are testing the $85 area again.
As this War gathers momentum and they double down on ‘renewables’ to power all the EVs and heat pumps we are being forced to buy by the looming deadlines, the increasing taxes and ‘windfall’ oil company taxes will deter even more the opening of new wells and restrict supplies (except in Russia and elsewhere, of course).
This will put another rocket up US crude markets.
My bullish forecasts are relying on the stubbornness of Western powers to kill oil and gas supply – all the while perversely increasing demand by making the switch to EVs and heat pumps impossible for the majority.
Of course, OPEC+ will also do its bit by cutting supplies if they see demand weaken.
Thus, I see the ultimate in irony – Western governments straining to save the planet and all the while, CO2 production will keep increasing, thus greening the planet (in the true sense of that criminally abused word). Yes, the schoolroom biology lesson of photosynthesis will eventually win!
Right away, we see that prices have ranged from $150 high to near zero low making it the market with the greatest range of price swings – far out-beating most stock charts (except Chargepoint Holdings, to quote one example).
This is a market to be taken very seriously for profit potential. Just yesterday it surged to make a ten-month high above $85. And we remain long the oil majors for Pro Shares.
From the Corona Crash low 2 1/2 years ago, it has advanced to the March 2022 high at $128 which appears to be a complete impulse wave containing five clear sub-waves. I am labelling that wave 1 of a large five up. We are now starting a major third wave up having put in the wave 2 low in May.
Of course, this will impact the real economy adversely (US gasoline prices are now at their highest ever as Monday is the big US Labor Day holiday).
Another bullish factor for oil is the sharp slowing of demand for EVs where un-sold dealer inventory is piling up and prices are being slashed to try to boost demand.
So could the imminent Chinese EV invasion to Western markets be occurring at just the worst possible time (for them). Is a massive over-supply of expensive un-necessary ICE replacements be looming? Can we look forward to seeing ships loaded with Chinese EVs pile up at our docks (and beyond) unable/unwilling to unload? Watch this space.
China’s economic woes are already big MSM news and the PBOC appear powerless to stop the slide. Their support efforts of tinkering with interest rates have gone largely ignored. Dare they fire a big bazooka to try to rescue their collapsing real estate market and general economy?
Keep this eyebrow-raising chart in mind
In my blog of 5 August, I posted this chart of the S&P and the 10-yr Treasury yield (inverted)
This is the one chart we need to keep posted on our office wall that in one place shows the upside/down world we live in. Bond yields are rising as is the S&P. So does this mean that the level of interest rates has no effect on company profits? Are company profits untethered from the cost of money?
If so, we truly are in a new world and uncharted territory. But remember, on ancient maps when the extent of the known world was marked, beyond was printed: There Be Dragons!