- The Fed’s Policy of Perpetual Bull Market
- $DIA, $GLD, $SLV
In this longest Bull market on record, do you see what I see in the Bear’s Eye View chart below?
The Dow Jones’ last BEV Zero (last all-time high) was on October 3rd; and for the first time since October 3rd the Dow Jones broke down below its BEV -10% line. It goes without saying, as I’m sure the bulls would be happy to point out to you, that the Dow Jones could reverse direction this week and see a few more BEV Zeros in the chart below before the New Year.
The bulls could be right about that. Still, I think it’s important to point out to my readers that as of the close of this week the Dow Jones has been trending the wrong way for over two months now, and now on a double-digit percentage basis.
Still one can’t argue with success; since January 1982 the Dow Jones has seen its strongest period of “growth” (inflationary expansion) in its history. Look at the frequency distribution table I placed in the BEV chart. I highlighted the BEV Zero (0%) and -0.0001% rows. The BEV Zero row contains each new daily all-time high, and the -0.0001% row every daily closing just a fraction short a new all-time high down to -4.999% from one. Together these two rows contain 49.69% of the 9,320 daily closings for the Dow Jones since January 1982. Statistically speaking, this means every other daily closing in the past thirty-seven years the Dow Jones was at, or within 5% of making a new all-time high.
To put that into historical context, below are three frequency distribution tables analyzing daily Dow Jones BEV data going back to February 1885 seen in the following Dow Jones Bear’s Eye View chart.
The far left table below spans 1885 to the close of today. Again, looking at the table’s BEV Zero and -0.0001% rows, the Dow Jones closed at or within 5% of a BEV Zero in only 25.19% of its 36,681 daily closings of the past 134 years.
This span of time extends back to when steam locomotives were the hot high-tech sector up to now when social media companies are; when the Dow Jones valuation increased from 39.07 on 16 February 1885 to 26,838.39 on 03 October 2018. That’s a gain of 68,126%, a 687 fold increase that would not have been possible had the Federal Reserve not been as committed to “economic growth” as it has always proven to be.
The next table of the three is from February 1885 to August 1982, the month and year the stock market began a perpetual bull market that many “market experts” believe continues today. For these ninety-seven years the Dow Jones closed at or within 5% of a BEV Zero in only 16.75% of the 27,523 daily closings.
It should be noted from 1966 to August 1982, the Dow Jones had on five occasions risen above 1000, but then failed to stay above 1000 with significant pain inflicted on investors from the following five market declines. Market psychology in August 1982 was such that any time the Dow Jones broke above 1000, the smart money was going to short the market or get severely spanked by Mr Bear.
On 16 December 1982 the Dow Jones closed at 990.25. It would never again close below 1000 as the Federal Reserve’s new “monetary policy” was one of perpetual bull market at the NYSE. The far right frequency table covers this period of market history, where the Dow Jones closed at, or within -4.999% of a new all-time high 50.57% of its 9,158 daily closings as it soared to 26,838 on October 3rd of this year.
Seeing every other day a new all-time high or within -4.999% of one for a thirty-six year period seems a bit extreme, but as seen below it gets worse.
These two frequency tables cover the Roaring 1920s Bull Market and the Post Credit Crisis market advance. If you look at their total days they are roughly the same. But note in the 1920s the NYSE also traded on Saturdays. So on a yearly basis the 1920s data occurred in eight years while the post credit-crisis advance has gone on now for almost ten years.
Once again we look at the top two rows of the tables, where in the bull market of the 1920s an amazing 67.47% of the 2,382 daily closings were new all-time highs, or within -4.999% of one.
The Roaring 1920s Bull Market was an inflationary-market mania. And until Dr. Bernanke began reflating market valuations in the wake of the sub-prime mortgage debacle with his three bouts of QE, no other period of market history came close to its inflationary excesses.
But note how since 09 March 2009, to this week’s closing, the Dow Jones closed at a new all-time high, or within -4.999% of one for an astounding 78.41% of these 2,464 daily closings.
I’m speechless, not just for the Frankenstein’s Monster quality of the current bubble the FOMC has inflated into the stock market, but at the total ignorance of its existence by not only the public but also by the main-stream financial media.
People follow the main-stream financial media for market insights. But in truth the MSM is only the willing tool of our well-entrenched establishment that cares nothing about how the average investor prospers in the years to come.
Here’s an eight minute video from Jimmy Dore, a leftist social commentator who I enjoy watching for his humor and candor. Jimmy found a must-see video on the MSM’s coverage of The Trump Administration pending downfall. Like me, I suspect my readers will pass it along to others after viewing it.
And then there is this from USA Today, a MSM outlet whose editorial staff’s obsession with the destruction of Donald Trump has become all consuming.
The point of these links is that sometime in unknown future it will become painfully apparent that the main-stream financial media served its consumers of information no better than the political analysts seen above.
There is more information to be gleamed from these frequency distribution tables above. Looking at the Roaring 1920s table, we see that from September 1921 to September 1929 the Dow Jones saw no correction that broke into the BEV -20% row. That’s a long time for a major advance not to see a correction of 20%; and the same is still true for our post credit-crisis advance.
Now look at the BEV -15% rows. Our advance saw only eight daily closings that declined more than 15% from an all-time high since March 2009. The 1920s advance saw 92 daily closings of 15% or greater.
A case can be made how our post March 2009 advance is actually a greater market mania than seen by the Dow Jones in the 1920s, and I believe this to be so. The major difference between the 1920s and our inflationary advance is the 1920’s bulls were in the main retail investors using margin debt to leverage up market valuations in the Dow Jones.
The big bulls in the post March 2009 advance weren’t retail investors, but the actual central bankers themselves, like Doctor Bernanke. As Fed chairman Doctor Bernanke not only cut his Fed Funds down to zero for seven years, but also used the Federal Reserve’s balance sheet for hare-brain schemes such as Quantitative Easings to flood the market with monetary inflation and his Operation Twist to ratchet down long term bond yields.
The following chart plots the Fed’s balance sheet since 1953. It’s not difficult identifying precisely when Doctor Bernanke dictated “monetary policy” at the Federal Reserve.
Doctor Bernanke, the big man on campus at Princeton University’s Economics Department, who at the bottom of the high-tech bear market in November 2002 proudly stated the following:
“The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.”
– Benjamin Bernanke, Federal Reserve Governor – November 2002
In other words: deflation in the financial markets ain’t going to happen if I ever become Fed Chairman!
Alan Greenspan was Fed Chairman at the time. But everyone in the main-stream financial media knew someone as dedicated to the destruction of the American dollar as a financial asset as Doctor Bernanke proved to be had to be Greenspan’s successor. And for once, the main-stream financial media was correct.
Let’s take a look at the Dow Jones in the chart below, along with the above two frequency distribution tables for the Roaring 1920s and our post credit-crisis advance.
In the chart’s insert we see the 1920s bull market, an advance free from 20% corrections for eight years. The first 20% correction of the 1920s began on Thursday, 24 October 1929 as the Dow Jones closed 21.43% from its last all-time high of 381.17 seen on 03 September 1929. As trading opened on the following Monday all hell broke loose on Wall Street as the Dow Jones dropped 23% by last Tuesday’s close.
The Great Depression crash had begun days after the Dow Jones saw its first 20% decline from an all-time high since 1921.
Here’s a sidebar for the above chart; the red star fixes when Alan Greenspan become Fed Chairman in 1987. Doctor Bernanke began chairing the Fed in March 2006. These two Fed Chairmen are responsible for what you see above.
That central bankers themselves are now the major bulls in the market, what will happen when the Dow Jones sees its first 20% correction since 9 March 2009? Like the retail investors of 1929, will these central bankers too run for the exits only five days later?
I doubt it, but then again they have already made the decision to crash this market. The Fed’s program of rising interest rates PLUS the contraction of their balance sheet, very evident two charts up guarantees a crash sometime in the future. This will be a market event the MSM must blame on someone, but someone other than the Federal Reserve or Wall Street’s corrupt establishment.
The MSM will be more than willing to assist the FOMC in fixing the responsibility for a crashing market on President Trump, who has absolutely nothing to do with inflating this monster bubble in the financial markets. The financial establishment hates Trump as much as any reporter you saw in that Jimmy Dore video, and quite possibly more. They know Trump is more likely to jail them, than bail them out as Obama did in 2009-11.
Whether or not the investing public continues believing the nonsense daily reported by the MSM; when the inflationary bubble currently residing in most people investment portfolios and pension funds begins to deflate in earnest, the effects of collapsing asset valuation will be widespread and devastating. The only exception to that will most likely prove to be precious metals assets: gold and silver bullion and precious metals miners.
A quick study of the plots below shows the advances in the old monetary metals remain intact. Gold is progressing towards the 1.10 line. Silver is still struggling to break above its 0.95 line as it has since August. When that’s accomplished, hopefully we can then forget about silver’s 0.90 line once and for all.
All and all there isn’t much to comment upon the old monetary metals as 2018 draws to a close.
But if history is any guide, and it usually is, when the financial markets come under the grip of deflation sometime in the future, we should expect some stunning advances in the gold and silver plots above.
Until then, the Dow Jones saw some excitement this week, its eleventh day of extreme volatility on Friday the 14th, as seen in the daily bar chart below.
As noted many times before, market action post October 3rdis horrible.
With eleven Dow Jones 2% days since October 10th, along with a few days of extreme volatility from last February that are becoming very stale in the Dow’s 200 count, the count closed the week at 14 in the chart below.
The higher the count climbs, the harder it will be for the “policy makers” to keep the stock market from deflating.
The Dow Jones and its step sum below are becoming interesting.
In a step sum chart the price plot represents market reality while the step sum plot market expectations. Typically these two plots trend up and down together – but not always. When they decouple a step sum box is formed, and below we see the price plot for the Dow Jones deflating as the Dow’s step sum (market sentiment) ignores this increasingly painful fact of life.
I haven’t declared this decoupling of these two plots a Bear Box just yet. I like to allow the decoupling of these plots to continue for a few months before I do.
But right now it appears the Dow Jones is heading into a period of deflation, while the bulls remain in denial, hoping the market will once again turn their way.
If a Bear Box is in fact forming, history suggests that it will take a lot of pain before the bulls see the error of their bullish stubbornness.
Here’s gold and its step sum. Not since gold formed a Bull Box that failed in 2016 have these two plots decoupled. And seeing them decouple for a few days or weeks doesn’t count. A true step sum box goes on for months, and sometimes for years.
But as for now, market reality (Blue Price Plot) is bullish in the gold market, while market expectations (Red Step Sum Plot) are guardedly bullish. Mid-month December 2018; that’s probably a pretty good assessment of the gold market, and it should remain that way until the financial markets begin to deflate in a major fashion.
Here are the price and step sum tables for gold and the Dow Jones. These tables are useful to study along with their step sum charts above. In gold’s table we see the price of gold rising since early November, gaining about $30 on an increase of 1 in its step sum on Friday’s close, though last Friday its step sum was 245.
These are all tedious details in a market not in a hurry to do anything exciting to the up or downside. And I expect this will continue being the case for gold until we see daily volatility in the gold market begin to surge upwards from its current 0.44% in its 200 Day M/A.
Unlike the Dow Jones – gold and silver bull markets LOVE BIG DAILY VOLATILITY!
Days of extreme volatility for gold are +/- 3% days, while for silver it takes a +/- 5% daily move to produce an extreme market event. The last time gold saw an extreme day was on 04 October 2016, a -3.30% day, and silver’s last extreme day was on 11 November 2016, a -6.66% day. Both of these days were over two years ago, two years of quiet daily trading that did little for us bulls in the gold and silver markets.
But you just wait. The day is coming when the gold and silver markets will once again see regular daily moves of well over 3% and 5% as they resume their market advances, as deflation in financial market assets such as stocks and bonds inspire fear and loathing in the hearts of their owners.
The situation over on the Dow Jones side of the graphic above is completely different. We can see the development of a bear box for the Dow Jones.
Since November 9th the Dow Jones has lost over 2000 points, yet its step sum is little changed.
By Mark Lundeen
Paul Ebeling, Editor