22,000+ – Now What?

While the doom porn industry has been having several years of failed predictions about the pending “doom of the US economy” the reality is that we continue in a major up-trend that only seems likely to stop when we have completed an historical rhyme off events of 1929.

In that year, when we count the number of trading days (including some Saturday trading back then) beginning from Herbert Hoover’s inauguration (March 4, 1929) and running to the all-time-market high (Sept. 3, 1929), we would have to place a possible all-time-high watch on the period around August 21 (eclipse day) and August 24th.

While it’s reasonable to have reservations about that data, we’re also mindful that the Federal Reserve *(which is not really federal) has been pumping cash into the economy at a break-neck speed.  The most recently revealed data suggests M1 (cash and equivalents) has recently been expanding at9.5% annualized rate as detailed in the Fed H.6 Money Stocks report

(Continues below)

The ultimate levels the market can reach will be somewhat bounded by easy money.  Some of it “leaks” into the market pricing.

There is a seasonal factor, though, as well.  That is that summertime is when the big market players can “paint the tape” – making the Dow move smartly upward – giving the impression of a market on steroid – while the rest of the market hangs back.  There’s good money to be made in arbitrage between markets.

As of today, we see things about flat at the open.

Without getting into our proprietary aggregate view of markets, let me share where today would end if the future’s pricing in the pre-open holds to the close:

Remember, this is now the Dow Jones, or any other average.  It is a view of markets based on the notion of putting equal amounts of money into three main trading indices:  The Dow Industrials, the S&P 500, and the NASDAQ Composite.

The view evolved from our tracking the Tech Wreck collapse of 2000-2003.

Maybe you’re too young to remember that, but it struck me as odd that the mainstream media was touting the “recovery” of the markets when only the Dow and S&P had really recovered.

The “headline numbers” didn’t include the really “accident victim” of the Internet Bubble popping.  More than $5-trillion (and by some estimates as much as $7-trillion) in market cap had been wiped out.

But the investment industry simply chose to ignore the net losses of an aggregate (total) basis.  Instead, they would simply ignore the overall Big Picture and cite only the indices they could promote with a ‘story’ that would seem logical.

Let me show you how this worked.

When our Aggregate Index topped in the spring of 2000 at 13,091.92 on March 24, 2000, the S&P 500 stood at 1,527.46.  The NASDAQ Composite was 4,963.03.

By the summer of 2007, the S&P was back into that 1,527 area – slightly over it, in fact.  Market promoters will proclaiming the markets were sound and going higher – which they did for a while.

But what about the NASDAQ Composite?  Truth according to our research is that Techs didn’t recover to their 2000 levels until 2015.

Or, have they recovered, at all?

What the market price of stocks don’t mention overtly is the impact of inflation.

What would Techs have to reach in order to have the same purchasing power (what we call in economics purchasing power parity) as they had in 2000?

A simple way to resolve this is to head for the Minneapolis Federal Reserve website where there’s a useful inflation calculator.

If you put in 4,963.03 and set the start date to 2000, you’ll be shocked to learn that simply to equal the 2000 high, the NASDAQ Composite would need to be 7,041.46.

Yesterday the Composite closed at 6,362.65.  That’s about 9.6% shy of recovering the index purchasing power – almost 17-1/2 years after the 2000 Tech Bubble’s Peak.

The good news, such as it is?  There are lots of asterisks involved.  For one, the character and composition of companies comes and goes.  The Composite today is a different breed of company than it was back then.

But then, the same is true for the Dow.

Trying to make sense of the markets is not unlike horse handicapping.  Even the ‘stable’ Dow has been changed:

In 2015, AT&T was dropped from the calculation.  In 2013, Bank of America, Alcoa, and Hewlett-Packard were dropped. In 2012, Kraft Foods was dropped.  2009 saw the departure of CitiGroup and General Motors.  AIG was tossed in 2008 along with Altria and Honeywell.

Eastman Kodak was removed in 2004 along with International Paper – victims of digital cameras and paperless thinking, perhaps.

I assure you, that the Dow Jones Industrials of today would be a much uglier number if the index was not periodically “adjusted.”

This is what we worry so much about on the Peoplenomics.com side of things.  We went looking for, and evolved a way of looking at markets that looks at a number of averages and is thus something of an average of the averages.

Over time, it has been a useful process to follow.  What’s more,, there is a global analog to it which is what happens when you take multiple broad indices from around the world and average it all together.  In Europe, for example, we include the German DAXI, the French CAC-40 and the UK’s FTSE indices.

The payoff is markets SEEM to become a little more rational.  Their behavior tends to remain in neat trend channels.  And with some simple visual tools, a person with a decent drawing program (we use CorelDraw) can connect sequential bottoms and tops and make sometimes useful inferences from the data.

Right now, we’re in a short position (which is upside down) but as the market works to a possible slightly higher high, we then expect a profitable pullback.

Playing the market has never been easier or, to the reasonable investor, more rewarding.

To be sure, we are still expecting a final push of Bitcoin to somewhere over the $3,000 level, but we continue to be skeptical of all digital currencies.

In many respects, they have many of the same flaws as the paper/fiat Federal Reserve Notes they were designed to challenge. Still, in some ways, the paper currency is more reliable.  It can still be traded after an EMP event and without a computer, for example.

Also on point, read “Bitcoin divides to rule.”

But does it really represent anything?  Not so much.  Oh, sure, back when the paper money was denominated as Silver Certificates, you could take one in to a Federal Reserve Bank and exchange paper for silver.  But that doesn’t work anymore.

A Word About Prepping

When we step back from the financial system far enough, we begin to see some indications that simply too many things are “made up.”

If you consider yourself a good economist (there are few), one of the best mental challenges is to explain in one page, or less, how the current economic system differs from a classical Ponzi Scheme.

Back in 2001,  a colleague and I worked out the theoretical maximum lifespans of a paper currency.  Worked out to about 83.5 years.

Typically, at that point, usually around a 95% depreciation of money’s actual purchasing power, there’s a financial revolution (or Depression) where savings and debt are repudiated.

To our way of looking at things, only people who have acquired useful fungible items (like a paid-off home, a bit of land, manufacturing equipment, food production capability and the like) will be the big gainers.  The potential Big Losers will be those who have nothing save the Yoke of Debt around their shoulders.

One of the reasons Bernie Sanders was so popular with young people was that he was able to begin to articulate this and it resonated with young people.  But, unfortunately, Sanders didn’t have a solid plan to actually do something about the problem of excess debt on the young and besides, the crooked DMC machinations kept We the People from getting to vote on his view.

Very quietly, therefore, we keep our head down most of the time and write some thoughts now and then.  It’s never “the conventional wisdom” around here – just a look as an umpire might:

We call’s ’em like we sees ’em.

Job Cuts Plummet

What’s laughably called the “Trump Bump” but which we ascribe more to there being five percent more cash bouncing around the system than there was in November, continues to strut it’s stuff.

This as the Challenger Job Cuts report came out this morning:

Here’s the press release:

CHICAGO, August 3, 2017 – U.S.-based employers announced plans to cut payrolls by 28,307 jobs in July, the lowest monthly total since November 2016. Meanwhile, over 88,000 hiring announcements were recorded last month, the third-highest hiring month of the year and highest July total on record, according to a report released Thursday by global outplacement consultancy Challenger, Gray & Christmas, Inc.

The July job-cut total is 9 percent lower than the 31,105 cuts recorded in June, and 37.6 percent lower than the same month last year, when 45,346 cuts were recorded. Last month’s job cuts were the lowest monthly total since November 2016, when 26,936 cuts were announced.

So far this year, employers announced 255,307 planned job cuts, down 28.9 percent from the 359,100 cuts announced through the first seven months of 2016.

“Job cuts have slowed significantly as we reach mid-year. This month’s total was the lowest July total since 23,238 cuts were recorded in July 1995,” said John Challenger, Chief Executive Officer of Challenger, Gray & Christmas, Inc.

In fact, monthly job cut totals have fallen under 30,000 only three times in the last ten years, all of which occurred in the last three years.

The market reaction has been muted: Dow and NASDAQ futures are up a tad while the S&P was down a bit.

Now for Some Real News

As tensions continue to build on the Korean peninsula North Korean money man reveals smuggling operations.

Venezuela continues on the brink of collapse as Venezuelan President Nicolas Maduro Denies Claims of Vote Manipulation.  This could impact US energy imports and might keep oil prices from dropping into the $30’s as we expect.

Russia Says New U.S. Sanctions Amount to Declaring ‘Trade War’.

Cyber ‘worm’ attack hits global corporate earnings.

More tomorrow, same time, same place…