Market Update: Brexit + One Week
What a week for the DJIA, last Monday it closed almost 6.5% from its last all-time high. By Friday the Dow Jones Industrial Average recouped almost all of its losses taken after the Brexit vote over a week ago.
Of course trading volume for the Dow Jones increased, as it has for the past sixteen years on all market declines, something that did not happen before 2000.
Looking at the past week in the BEV chart below, it’s difficult dismissing the possibility that the Dow Jones did nor have a little help from the “policy makers.”
So what do you think? It’s been fourteen months since the Dow Jones made its last new all-time high. Is it now going to make another? I doubt it.
As I see the market’s situation, if the valuations at the NYSE and NASDAQ weren’t constantly supported by monetary inflation flowing from the Fed, the Dow Jones would be nearer to its BEV -70% line than its current position in the chart below.
Take a moment and consider this; the Dow Jones advanced by 809 points from Monday to Friday’s close, just four trading days. If the “policy makers” really wanted to make it happen, how hard would it be for them to find another 364 points in the next week or two and make it happen?
Not hard at all.
So why don’t they do it?
They’re frozen with fear of what would come after that, is my best guess.
In the Navy, we had a saying that’s apparently the new credo for the FOMC:
Works Fine, Lasts a Long Time, Don’t F*** With it.
Understand that, and as the economy and market stands today, you too could sit on the Federal Reserve Board as a voting member.
To see how the Dow Jones (INDU) is doing compared with the other major stock indexes, I’ve prepared the table below, along with the data from the credit crisis bear market bottom of 9 March 2009.
At the end of the week, the market held up pretty well. The only problem is that since May 2015, it hasn’t really advanced either.
The below chart of the Dow Jones tells the tale.
Since May of 2015, with the exception of a few spasms to the downside, the stock market has been stuck at its current levels for a long time. However, nothing lasts forever. And for a market that refuses to go up, ultimately it will find its path of least resistance to the down side. Looking at the bottom trend line, that might mean a Dow Jones close below 5000; a market decline of 72%.
But I’m not that optimistic.
After three decades of monetary shenanigans by Greenspan, Bernanke and now Yellen, I expect a repeat of the Great Depression Crash is ahead of us.
For the first time in two years, on Thursday (11.93%) and again on Friday (12.81%) of this week, the NYSE 52Wk H-L Ratio broke above 10% (chart below). No doubt good news for the bulls, but we bears aren’t so easily impressed.
I can tell you what it will take for me to get bullish again; when the “policy makers” get the heck out of Mr Bear’s way, and allow him to get rid of the financial garbage the Federal Reserve System has weighed down the economy with.
- Writing off all student loans,
- All the half million dollar mortgages written on hundred thousand dollar houses have to be liquidated, without any mercy on the Wall Street Banks who facilitated this fraud, twice, in the past fifteen years,
- And default on all nineteen trillion dollars of the US national debt, as well as finally admitting to the Baby Boomers that their Federal Government had, over their life time, squandered all of the money they paid into the Social Security and Medicare trust fund Ponzi schemes.
Europe, as well as Eastern Asia, will also have to participate in this Bonfire of the Vanities, whether or they like it or not.
There’s more for Mr Bear to do, but the above three is a good start.
What, you don’t think this will happen?
Well let me tell you a little fact of life Janet Yellen, and her colleagues at the FOMC have chosen to remain ignorant of: Bear markets are all about Mr Bear getting rid of the trash accumulated on everyone’s’ balance sheet during the previous bull market. You simply can’t have a new bull market until Mr Bear first takes out the trash from the old bull market. And after the market bail outs from 1987, and 1992, 2000, and the granddaddy of them all in 2008, even Mr Bear gets nauseated at the thought of the task at hand.
Before this bear market is over, all this, and more, will be recorded in the final chapter of the sorry history of the US Federal Reserve System, and their crummy debt-backed Federal Reserve Notes.
I’m not making this prediction from whole cloth. There is 5000 years of recorded history, most of which is a record of government abusing it tax paying citizens in a most shameful manner.
Inflating a nation’s money supply until it becomes worthless, and assuming debt to levels it can never, ever be paid back are time honored traditions of the ruling classes for thousands of years.
Sounds like it’s time to get some exposure to gold and silver bullion. And how did the old monetary metals do this week? Damn good!
Below is a Bear’s Eye View (BEV) chart of gold going back to 1969. From its lows of last December, it’s advanced from -44% up to over its -30% BEV line.
But silver took top prize this week, where for the first time since September 2014, it closed above $19 in a spectacular manner; moving up by over $2 (11.56%) from last’s Friday’s close.
Look at its step sum. Since the beginning of the year the silver bulls have fought tooth and claw with the bears, and this week, the bears finally gave way.
Moving on to gold and silver step sum and 15 count tables, we see both metals had a productive week.
Gold is finally within 30% of its last all-time high, a distance it could easily cover in the next six months. Silver’s 15 count ended the week at +7. Usually a +7 is an indication of an overbought market; a time to take some profits.
But with silver’s COMEX open interest near all-time highs, the shorts are going to have a hard time enjoying this year’s 4th of July picnic should silver continue to advance in Asia on Sunday night.
We may see a panic develop in the silver market next week. No guarantees on that mind you. But this is exactly the situation where one could develop.
Silver in July 2016 is a market that could make history. In fact since its top in 1980, it’s been making history as the commodity market’s 98 pound weakling. But all that is going to change.
Look at silver in the BEV chart below from 1969 to 1980. It never saw a decline of over 40%. After 1980, someone nailed silver to its BEV -90% line for the following two decades. From 2003 to 2011, silver retraced its 90% decline in less than eight years. The Dow Jones from its 1932, 89% bottom took twenty-two years to break above its highs of September 1929. But actually silver has yet to break above its last all-time high of January 1980. At its close of 29 April 2011, it fell just $0.12 short of doing so. On the following day, silver began a five year 70% market decline that looks damn suspicious to me.
If I, and my fellow market commentators over at GATA are correct, the silver shorts in the big NY banks, who have manipulated the silver market for decades are about to get theirs. How long it will take to see silver finally post a new all-time high ($48.70 + $0.01) I can’t say. But if it happened by this Christmas I wouldn’t be shocked.
Silver saw a +5% day on Friday, its 48th since December 2000. Should a buying panic develop in the silver market in the weeks and months to come, don’t be surprised should it make history in the chart below. Currently, the largest daily percentage advance was a +18.33% move on 28 March 1980.
The Silver to Gold Ratio (SGR) is back below 70 ounces of silver per one ounce of gold. It peaked at 83 ounces of silver just this February. As the bull market in the old monetary metals progresses, the SGR will continue to contract.
One of the unavoidable facts of our modern world is that there is more gold available above ground than there is silver.
For centuries, the SGR was around 15, because miners found 15 times more silver than gold. Then our modern world arrived, which consumed silver in industry as it does petroleum products.
After decades of market manipulation in the silver market, where billions of ounces of government-held silver were sold at subsidized prices, divorced from economic reality, silver became a very rare metal, much more so than gold.
One has to wonder where the SGR will be when the markets are finally forced to factor this into the price of silver due to global shortages. It just might be that an ounce of silver will one day become more expensive than an ounce of gold.
Yields for US Treasury bonds continue to see new lows. Think of this move as the march of the damned. With central banks everywhere “monetizing” anything that yields cash, I’m not surprised bond yields everywhere are collapsing. Europe’s sovereign bonds are in the main actually in negative yield territory.
What’s a fiduciary managing money for a pension fund or insurance company to do in today’s bond market? They need a yield of something like 5% so their institution can service its obligations. However, high quality debt yielding something around 5% hasn’t been available for years.
Here’s another item we can add to Mr Bear’s to-do-list before this bear market is over; drive into extinction 90% of today’s pension funds and insurance companies.
Don’t blame him!
Whose idea was it to intentionally drive down long-term bond yields in 2011 to “stabilize the financial markets” with his “Operation Twist?”
It was that Bernanke guy, the guy who used to sit where Janet Yellen now does.
Where do they find these quacks and charlatans?
Oh, that’s right; Princeton, Berkeley, or some other “prestigious” university.
When interest rates and bond yields once again begin to rise, and they will, all hell is going to break loose.
Gold, silver and the precious metal mining shares are going to do things you simply cannot believe today.
By Mark J. Lundeen
Paul Ebeling, Editor