Markets: Feeling Luck, Punk?

Breaking:  Challenger Job Cuts

2019 July Job Cut Report: 38,845 Cuts in July Led by Transportation, Industrial, Energy.

The pace of downsizing slowed in July, as U.S.-based employers announced plans to cut 38,845 jobs from their payrolls, down 7.5% from the 41,977 cuts announced in June, according to the latest report on job cuts released Thursday from global outplacement and business and executive coaching firm Challenger, Gray & Christmas, Inc.

July marks the second consecutive drop in monthly job cut announcements since May, and is the lowest total since August of last year, when 38,472 job cuts were announced.

Despite the drop, July’s total is 43.2% higher than the 27,122 job cuts announced in the same month last year. So far this year, employers have announced plans to cut 369,832 jobs, a 35.8% increase from the 272,301 cuts announced in the first seven months of last year. It is the highest seven-month total since 2015, when 393,368 cuts were announced.

After data, Dow futures up 30.

OK, the Fed Lowered:  Now What?

Logically, the answer is we should rally because the cost of money isn’t going higher and that may be a good things, except, it’s not…  And that takes some explaining.

First, we think the Fed is on the verge of being spectacularly wrong.  Americans are sinking into the realization that, at least for now, prices aren’t going through the roof.  And, when price expectations are level to down, people hold back on spending.

The underlying mental process goes “Why not wait?  Maybe a newer version will be released, prices will drop, Amazon will have it on sale, or I won’t want the same thing...”

This is the mindset that people can get into and it’s one part of what turns a Recession (like the one everyone’s yammering about being just ahead) into a full-blown Depression.  ISYN and there’s data in the NY Times supporting that view.  Read “Lower Rates Already Hit Housing. They’re Not Helping Much..”

The Fed, rather than keep a steady hand on the tiller – which would have been fine, is now setting up two problems that in 3-4 years we’ll be pointing back to while laughing “ Told you so!” – from the soup lines.

Because besides throwing “Buy ’em while they’re cheap” under the bus, the Fed has also started to squander their ability to lower rates in the future and  that means we can have negative interest rates and all kinds of terrible things.

The silver linings?  Not much, really:  In the short term it should fuel a blow-off until later in the month (more in a sec on this) and it will keep Donald Trump off J Power’s butt while keeping the cost of rolling over bonds low.

But here’s the tactical problem as a chart.  It compares the 1920-1935 period (black trace of market prices) with the red trace which is our broadly measured Aggregate Index since the 2009 market lows.  See the problem?

In a nutshell, we are almost out of “Replay Room” and the Fed has done an admirable job of hyper-extending the rally.  But, since it comes in the artificial world of “Making Up Money” under the guise of modern monetary theory, it’s too early to tell which ditch we will be slammed into, yet.

Ditch, you say?  One is called hyper-inflation as the Weimar Republic went through when slammed with reparations for WW-1 while the other is the aforementioned soup lines of the Hungry Days in America, better known as the Great Depression.

Now let’s put some date ranges to work.  You’ll refer first to the black arrows adjacent to A and B in the chart.

In A, you will see the bottom occurred the week of 5/30/1929 while the peak week was August 29, 1929.  On a daily chart, you’d see Sept. 3 of 1929 was the All-Time-High.  Time between?  91 days.

It’s a bit more complicated by things like Saturday trading and it’s not quite the same today because the G20 and everyone’s mother is scamming angles to make a buck.  Including the illegal manipulation that government has approved called high-frequency trading.  That lets trading firms  front run your trade – even if by a few milliseconds – in order to make money.

The FedGov figures this is alright because they only make a slice of a penny per share.  But, as we tend to be financial absolutists, there’s no such thing as “partly crooked” (which ANY front-running is).  The same people who justify partly (or just a little bit) crooked in markets have the same mindset as “partial birth” abortion advocates.

Back to point.

Suppose you were a genius and noticed this all in the charts back in December when, as you can see, the contemporary market put in a low over the Christmas Eve washout.  If you had gone long then, waiting the 91 days before the analog to 1929 timing, where you would have bailed on the rally earlier this year?  Answer? Week of  March 25th.  The actual high came several weeks later, though, May 3 in the Aggregate Index.  You would have been out a month early.

Still, that would have avoided a nearly 9 percent drop to June 3rd.

Now we have the big problem:  What’s ahead?

Well, if we look at market moves being somewhere around 90-days, we might expect a high 91-days after that June 3 mark might be useful. Which would put us into the first week of September this year.  Of course, you can’t compare now and then.

What it comes down to is what kind of  gambler are you?  On the one hand, there’s a chance from this low that we could rally up through the August options expiration and maybe a bit further in the fall.  But, as you’ll see in the  theoretical, don’t try this at home, adult supervision required, check with a real money professional,  we can make out a case where things hit the skids in early September and just keep going down.  Maybe sooner, too, since 5th waves do occasionally fail….

Long term charts have various support levels for the S&P 500 from the 2000 level down to S&P 1,750, and even lower. when the bottom eventually falls out.  Since that’d be about 58.3% of what the market is worth in the past few weeks, that would auger a Dow around, oh, 15,744.  Mind-numbing prospect.

How Does “Old People’s Money” Play It?

Safety first.  Honestly, we’re conflicted.  Yes, a short position will be a no-brainer once we get to a possible break in a month, or so.  But trying to play this last run up?  Not so sure, on that one.  There are a ton of loose ends, any one of which could be deal-changers (and killers) and result in a premature end of what might be a Wave 5 (v) underway now as you can see in chart.  OR, the market could subdivide further and keep wandering along the icy slopes of disaster.  No telling when they would end.

The fresh patch of ice?  China’s army chief in Hong Kong says ‘violent radical incidents’ cannot be tolerated, as garrison releases slick PR vid.”  And this is before the IG report this month and yes, HK explains why trade talks are also “on ice.”

These headlines suggest to us that China will build a distraction somewhere else before going into Hong Kong.  Something like Pakistan would be timely, though we note that “Pakistan evacuates 50 Chinese nationals in PoK due to continuous firing near LoC…”  But, when you’re China, you don’t need an excuse beyond the Little Red Book.

If you’re old (I’m not, since I’m ONLY 70) you could get solidly into cash and equivalents  any time since stocks have some downside potential in a short order and when you’re old, there’s no time to make up losses.

On the other hand, if you’re young and you can make-back a substantial loss (if you call it wrong) then have at it.  Just don’t whine to us either way since you’re on your own and one of our requirements here is readers wear grown-up pants.

Although we do see where  Depends could be useful before summer’s out.

Elsewhere, Mostly Useless

Payback’s a what? Osama Bin Laden’s son killed in military operation.

Idiots on Display: Dem Debate Post Mortem: Rivals Attack Biden, Harris; Gillibrand Says She’ll “Clorox The Oval Office”

Immigration helping, we wonder? Shares of Taco Bell-owner Yum Brands jump as earnings top estimates.

Energy Terrorism?  We ask as two stories pop: Shares of Taco Bell-owner Yum Brands jump as earnings top estimates and 37 injured at an ExxonMobil plant explosion and shelter-in-place at Baytown, Texas last night.

OK, write when you get rich,

17 thoughts on “Markets: Feeling Luck, Punk?”

  1. Taco Bell sales up? Just another sign of tightening budgets. I can take my family to our favorite hipster vegan bar for an 80 dollar lunch and drinks, or $12 of TB (we call it TB) and we’re all stuffed full. $3 of PBR fills out the drink menu. People are picking the latter more, and I know why. Actually, I just told you.

    • Yo no quiero Taco Bell !

      I’d rather stay home, get something useful done and eat only my supplements and their carrier foods. Instead of spending $80 or even $15, I can eat a days worth of summer food for less than a dollar and enjoy it just as much. The upside is that I have time to research and do real work, actually lose weight, and don’t have to get into fancy clothes like clean jeans. No tiring socializing or performing for no good reason. If you’re hanging with your family anyway, there’s no need to leave home. If not, then occasional socializing may become necessary, though it can be done without having to eat anything. So much for the velocity of money!

      • Family time, a rare ‘commodity’ today….BUT a ‘life time investment’…with ‘stellar’ returns…

  2. Contrary to my nature, but now that I am older, yesterday morning I sold off most of my positions, especially with the run-up in semiconductors, it was time to take profits. When older it is nice to see safe cash.

    Now to wait & see if that was a smart move & then buy back. This strategy never worked out well for me in the past, so I just bought & held & it worked out fine. Was this move a “stop doing what is working & change it so you fail syndrom”. We shall see. But I feel safe…a sign of old age? Plus, I now have the time to watch the markets which may or may not help because I would rather be doing other things.

    • That was some excellent timing and great luck on your part. I’m sure you’re sleeping better than many tonight.

    • @ ecs

      Hopefully you have ‘learnt’ wisdom with aging , as to NOT trust fiat and governments…….and you have a gold and silver coin as does George….

  3. George,

    Consider whether things really ARE different now than in 1920’s & 30’s due to one thing: pharmaceuticals and specifically, antidepressants and antianxiety drugs.

    A you’ve said, markets are all psychology. Recessions / depressions are driven by fear (in the old days, downturns were called “panics”).

    With today’s drugs, the fear psychology is still there, but muted and attenuated. The result, in my view, is fewer (or at least shorter) downturns.

    Just my two cents.

      • Having millions of psychiatric drug patients going cold turkey will result in bedlam in the streets, especially in low income urban areas. There aren’t enough jail cells or bin beds to hold them all, and the psych wards will empty out anyway, because those facilities are not designed to cope with mass loss of pharma restraints.

      • Maybe Prohibition (1920 – 1933) caused the Great Depression. If the country was drunk, would the stock market have crashed in 1929? Yes. Whether you are high or not, when the money runs out, you panic.

  4. George, regarding cash and equivalents, would you be so kind as to list what you consider to be cash equivalents?


    • An investment where you put a $1.00 in & get back a $1.00 plus interest. FDIC Insured Savings Account, Money Market Account, 1 year or less Treasury Bills, etc. A safe haven pending future investment of the cash. With today’s interest rates cash is like watching paint dry. Cash will get you nowhere with today’s low rates, but is better than a loss. I have an Equity Indexed Annuity from Allianz & you can get stock market returns when the market is going up, and when it goes down the worst case is a 0% return. It also has lifetime income options if you need that & you can change your investment mix once a year between stocks, bonds, & a fixed income account.

  5. I mentioned my AmEx changing terms of service (TOS). They gave me a way to “opt-out”. This opt-out may close the account, but I could opt out.

    Today I got an email from Ebay indicating a TOS update. No way to opt out.

    And another thing, I understand how networking works. The “Clouds” are not safe. Any super admin can see any data in the cloud. If any one/business we deal with uses the Cloud, we’re in. There’s no way to opt out of the cloud.

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