Darker Before the Dawn
Do you believe that the U.S. economy will experience a recession in 2023? Most signs point to it. Rare are the circumstances when 10-year Treasury obligations yield more than three quarters of a percentage point more than 3-month T-bills. The "yield curve inversion"...
Buckle Up: Hard Economic Landing Straight Ahead
The mainstream financial media continue to push the notion that the employment picture is robust. Unfortunately, the reality is a lot less vigorous. Consider the fact that millions of working-aged Americans never returned to the workforce after the 2020 pandemic. The...
Wither the Money Supply?
In the world of stocks, investors may be taught about a variety of things that move the markets. The economy. Corporate profits. Geopolitical events. Technical price patterns. Greed. Fear. There's some truth in the complexity. At times, however, Ockham's razor...
A Pause Is Not A Pivot
In recent weeks, investors have pushed S&P 500 stocks 11% up off their lows. That is a pretty solid, albeit standard, bear market bounce. Some believe that the bounce will usher in the beginning of a brand new bull market. Is it possible? Sure. Is it likely? Not...
The Next Leg Down
A primary cause of skyrocketing product prices and service prices? Central banks electronically printed obscene amounts of dollars, making the value of those dollars worth less. The Federal Reserve has been trying to undo its policy error by terminating some of the...
Misreading the Inflation Goblin
The financial media want you to believe that inflation is already coming down. Or that it has peaked. Gasoline prices may be coming down. Used car prices may have peaked. Yet the idea that the inflation goblin has gone away is premature. The Personal Consumption...
Has the Market Already “Priced In” the Worst?
Scores of commentators have been trying to persuade the investing public that stocks are "on sale." After all, the S&P 500 is roughly 23% lower than it was at the start of 2022. Might that imply that one can pick up a large company index fund at a bargain price?...
Three Things Must Happen
Most folks understand it now. The "Everything Bubble" burst. Like the dot-com balloon in 2000. Like the housing froth in 2008. Over-hyped assets eventually plummet. In the first nine months of 2022, bonds and stocks have simultaneously succumbed to dramatically higher...
Wake Me Up When It’s Over
Many in the mainstream financial media have been declaring that the current bear is one of the worst in history. That is incorrect. As least as far as stocks go. With respect to stock price decline, the S&P 500's 23%-24% fall from grace has yet to reach average...
Bubble Denial
Investors have an ability to delude themselves for extraordinary lengths of time. For instance, the worst annual performance for investment grade corporate bonds occurred in 2018. It was a miniscule -3.8% loss for IG corporates (via LQD). Here in 2022? IG corporates...
Stock Valuations Do Not Matter… Until They Do
Those who refuse to give up the idea that the stock bubble has burst, or refuse to consider that the market will drop further, ignore stock valuations. Consider the popular earnings-based and book-based metrics. In what world has the 21% decline from the top provided...
Until Something Shatters
A few weeks ago, most pundits in the financial media had declared that the bear market was over. If nothing else, they insisted, we had already seen the bearish lows. They were wrong about the bear market being over. And they are almost certain to be wrong about the...
The Worst Is Not Yet Behind Us
At the start of 2022, the stock market had been sitting atop its highest valuation extremes ever. In fact, our modern-day circumstance rivaled 1929's super-bubble as well the dot-com hysteria in 2000. By June of this year, the S&P 500 had descended as much as 26%...
Nobody Knows How the Real Estate Bubble Will Play Out
First things first. Is real estate experiencing a housing bubble? Look no further than how much one would need to pay in rent to be equivalent to his/her current cost of home-ownership. That is what Owner's Equivalent of Rent (OER) tells us. When the spread between...
Capitulation?
Last month, I observed something about the June stock market lows. Specifically, investors did not give up on stocks. They did not "capitulate." Here is my observation during the bear bounce in July: "In the 2000-2002 bear, individual investors dropped their stock...
The Next Leg Down
Have we seen the bottom for the stock bubble? Bullish enthusiasts point out that when stocks have recovered more than 50% of their bear market losses, they've never fallen to new lows. For these folks, once the S&P 500 surpassed 4232, the bear market ended. On the...
Where’s the Beef?
Since March, the Federal Reserve has rapidly hiked its overnight lending rate in an effort to curtail inflation. It may be working. However, the more important work to beat back inflation involves removing trillions of dollars from the financial system. Specifically,...
Lies, Bigger Lies, and Economic Data
It was the worst of times, it was the best of times. On Friday, the Bureau of Labor Statistics (BLS) revealed that the country created more than 500,000 jobs in July. Equally terrific? The data show gains of nearly 1.7 million new positions in just 5 months....
Strangest Things
Is the U.S. economy experiencing a recession? Technically... yes. According to the world's leading dictionary publisher, Oxford Languages, a recession is a period of temporary economic decline during which trade and industrial activity are reduced, generally...
Reverse Wealth Effect
Households as well as businesses feel wealthier when their stocks, bonds and real estate are gaining in value. It's called the wealth effect. The problem with wealth effects? They often reverse course and, eventually, cause market participants to curb participation....
Are You Inverted?
Scores of pundits are getting bullish on stocks. Their reasoning? We may have reached peak pessimism. For example, small businesses have never expressed more concern about the outlook for future business conditions. However, the stock market is probably not...
The 2022 Bear is Tracking 1973-1974
In 1973, OPEC's oil embargo sparked shortages throughout the U.S. I was only six years old at the time, though I still remember waiting with my father for hours on lines at the gas station. Energy inflation played a huge role in the 1973-1974 bear market. It was one...
Da Bears
There's one thing that everyone should know about bear markets. They do not end without capitulation. For instance, in recessionary bear markets, individual investors dramatically lower their stock allocation. In the 2000-2002 bear, individual investors dropped their...
Profit Margins: The Next Shoe to Drop
The S&P 500 has not performed this poorly in the first six months of a year since 1970. The picture is even uglier for the growth-oriented Nasdaq. Bubbly asset prices stayed frothy during the Federal Reserve's money printing spree and zero percent interest rate...
About Those Profits
Small company stocks are down roughly 25% YTD. They're down closer to 30% from their lofty November 2021 heights. That's making some folks, including myself, take a second look at overlooked smaller companies listed on the exchanges. On some measures, in fact,...
Getting the Recession They Want
The chair of the Federal Reserve, Jerome Powell, appeared before the U.S. Senate Banking Committee yesterday (6/22/2002). He acknowledged that a recession could result from the Fed's battle against inflation. "It's certainly a possibility," he said. In the recent...
Is the Worst Behind Us?
How scary is the "double whammy" of higher inflation and higher borrowing costs? Businesses have never been more pessimistic about the near-term future. Companies may be taking their cues from consumers. In particular, people are unlikely to spend on things like...
Never Say Never?
There are those who believe that the U.S. can avoid an economic downturn while simultaneously battling a 40-year high in the inflation rate. The problem? There has never been a time when annual inflation has been reined in by more than two percentage points without a...
Coming Unglued
The Federal Reserve electronically created close to $5 trillion for the U.S. government to hand out in the pandemic. Here in 2022, we are seeing the consequences of our government's money printing gone awry. For instance, 2020 investors “took advantage” by borrowing...
Already in Recession?
Are we already in a recession? It's certainly possible. The economic world typically defines a recession as having two consecutive quarters of negative growth. The measure of that growth? Gross domestic product (GDP). GDP contracted in Q1. And according to the Atlanta...
Demand Destruction
Depending on the measure, housing has rarely been less affordable. For instance, if one looks at average (median) household income as a percentage of median new home price, homes have never been less affordable. If one simply looks at mortgage payments, however, the...
The Shortest of Memories
The stock market ravaged the tech-heavy Nasdaq in the 2nd half of the year 2000. In just six months, the large-cap growth segment plummeted 40%. It was not nearly as bad for the S&P 500. Just a 10%-plus correction. A monumental buying opportunity, experts...
Should You Mind the Gap?
Some folks do not believe that there's a housing bubble. Clearly, they're not minding the gap. What gap? The one between home prices and what people earn. When the Fed forced mortgage rates dramatically lower in the early 2000's, homebuyers could afford lower...
Catching Down
Americans have very little confidence in the economy. In fact, you would have to go back to the banking collapse (2008-2009) to find as much pessimism as there is right now. Just how anxious are consumers? The spread between how we feel about the present (Present...
Et Tu, Housing Bubble?
Reckless policies by the Federal Reserve did not just create a monstrous stock bubble. Money printing and zero percent rate mandates bolstered today's housing balloon -- one that rivals the mid-2000s insanity. Folks may be coming to terms with the notion that stocks...
“Iceberg, Right Ahead!”
Few financial commentators were talking about the stock market falling nearly 20% in the first five months of 2022. And now, the very same folks are telling you that we cannot be that far from the bottom. Even if the S&P 500 falls 30% before bottoming, they...
The Unwinding
There's a whole lot of hope that the stock market can avoid a severe downturn. So far, the S&P 500 has been able to bounce out of bear market territory (-20%). Going into this year, however, stocks were extremely overvalued. They were pricier at the start of 2022...
If History Rhymes
Stocks have already lost 18% through the first 96 trading days of 2022. Odds are, things should get better from here, right? When stocks experience losses that surpass 10% through mid-May of a trading year, investors often see gains by the end of December. About half...
The Stuff That Stock Bears Are Made Of
The financial media wanted you to believe that the consumer is still strong. They pointed to data that showed robust spending at retailers this past April. What they failed to tell you? Those dollars had not been adjusted for inflation. When one accounts for...
Stop Betting on the Fed to Save Stocks
Why was inflation so horrendous in the 1970s? The U.S. Money Supply increased by more than 40% in a 3-year period. Why is inflation so troublesome today? The U.S. Money Supply increased by more than 50% over the last three years. Apologists say that the money printing...
Say Goodbye, TINA
Many folks wonder why the Federal Reserve needs to be so aggressive with interest rate hikes. After all, 30-year fixed mortgages have topped 5%, making it nearly impossible for homebuyers to qualify. The primary way for a central bank to beat back inflation is to...
What Are We Smoking?
It would be difficult to deny the existence of today's asset bubble. Not if macro-economic data and stock valuations matter. The stock bubble became particularly egregious in 2020. That's when the Federal Reserve's excessive money creation (a.k.a. "quantitative...
Bubble Trouble? Here’s How To Navigate It
Higher borrowing costs are already slamming the brakes on real estate. For example, a few months ago, one might be able to get a 30-year mortgage at 3%. That mortgage has catapulted all the way up to 5%. The difference between borrowing $500,000 at 3% and borrowing it...
Inverted Thinking
Rising interest rates? Check. Geopolitical tensions? Check? Inverted yield curve? Check. According to the research firm, CFRA, these factors alone are highly likely to be accompanied by a stock bear. When a recession has developed within 12 months of these items,...
Will the Walls Come Crumbling Down?
The 2022 stock bubble is well-documented. Yet, what about the present-day real estate balloon? For instance, home prices are bounds and leaps beyond anything seen in the mid-2000s insanity. To make sense of the true dollars, however, one has to adjust for inflation....
Sputtering Stock Train
The Federal Reserve added $5 trillion to its balance sheet to battle the Covid-19 pandemic. That's a whole lot of digital money creation in a matter of months. In actuality, the Fed started to print money digitally to manage the fallout from 2008's financial crisis....
How Much Can You Bear?
The Dow and the S&P 500 have only closed in correction territory. Specifically, the mainstream indexes have only experienced top-to-bottom price declines of 10%-13%. Underneath the surface, one half of S&P 500 components (250 companies) have plummeted more...
Technically Unsuitable
The percentage of stocks in the S&P 500 that are in a technical uptrend? 40%. In other words, the majority of stocks are trending downward. Ditto for the Nasdaq Composite. The percentage of stocks in an uptrend is a paltry 35%. Equally telling, the market's...
When Does the Fed Retreat?
The Federal Reserve is looking to navigate a path between fighting inflation and protecting markets. Granted, the central bank’s key mandates are to fight inflation and to bolster employment. For the entirety of the 21st century, however, the Fed has concentrated on...
Grumpy Consumers
Consumer sentiment is downright abysmal. It is as weak as it was during the 2008-2009 financial crisis and during the early 1980s recession(s). How downbeat are consumers? Data indicate that sentiment is 28% below an average reading. Consumer dissatisfaction is...