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...
Caveat Emptor
The dividend yield for the S&P 500? About 1.3%. That's about 65 basis points lower than the yield on a 10-year Treasury bond. The dividend yield is also nearing lows not seen since the stock market crash at the turn of the century. Some investors might be asking...
Damage Control
According to the data, the S&P 500's correction in the the first 16 days of the year represented the worst start ever. And the final tally for January does not figure to be much better. Some are even beginning to call the price damage a "stealth bear" market. For...
Going Up?
Many people assume that "stocks" have been a great investment over the last year. Few realize that the gains have primarily been confined to the U.S. large-cap space. Smaller company stocks represented by the Russell 2000 have gone absolutely nowhere over the last 12...
Chart Storm
In the first few weeks of January, the Nasdaq fell 10% below its 52-week high. Meanwhile, the S&P 500 slipped about 4% from its record peak. The reason for the volatile start to the New Year? Fear of the Federal Reserve raising overnight lending rates rapidly to...
Defining Insanity
“Insanity is doing the same thing over and over again but expecting different results” -- Narcotics Anonymous The Federal Reserve digitally printed roughly $3.5 trillion dollars between 2008 and 2014. In that brief period, the Fed created three centuries' worth of...
History Rhymes
“History Doesn't Repeat Itself, But It Often Rhymes” – Mark Twain Cathie Wood, active stock picking manager for the ultra-hip ARK Innovation Fund (ARKK), is still a bona fide superstar. At least according to CNBC. Unfortunately, the shine may be coming off the...
Place Your Bets
The Federal Reserve has been the investor's best friend for a very long time. For 13 years, if stocks fell a mere 10%-15%, the Fed immediately intervened with promises of ultra-low, interest rate stimulus. And when the pandemic crash of 2020 threatened to burst the...
Dicier By The Day
Digital money printing and interest rate manipulation seemed like a no-brainer in March of 2020. The world’s economic activity had been coming to a screeching halt. Here at the end of 2021, however, there are too many dollars chasing a scarcity of available goods and...
The Signs of Excess
Those with significant money at stake in 2000 remember what happened to them in 2000. They lost the bulk of their money. Investors certainly heard the warnings in the late 1990s, but they did not listen. Words of caution fell like silent raindrops. It was a "New...
Think Global, Act Local?
Since the 2008 financial crisis, U.S. investors have counted on Federal Reserve bailouts, bond buying, and digital money printing. Significantly lower interest rates combined with a huge leap in the money supply sent asset prices (e.g., stocks, bonds, real estate,...
Discrepancies Everywhere
I recently deposited $1,000 on a Rivian R1T. The deposit is fully refundable. That’s a good thing, since delivery of my electric truck is unlikely before the end of 2022. The Irvine-based company has been all over the news lately. Why? For one thing, this past...
Can’t-Lose Propositions
Stocks recently hit record highs here in November. Similarly, the volume associated with protecting one's stock portfolio with "put options" has fallen to a new low. What do these trends suggest? They imply that investors believe that things are different than when...
For What It’s Not Worth
The stock bubble stopped making sense several years ago. Yet, even speculators know, markets can remain irrationally enthusiastic for extended periods of time. For example, Tesla (TSLA) is being valued as though every driver on the planet will own one of their...
Stocks Disengage from the Real Economy
Ironic? Humorous? The stock bubble continues to hit high after record high, despite the economy showing definitive signs of weakness. Two months earlier, the projection for the 3rd quarter period was 6.1%. Today? The Atlanta Fed is estimating growth of just 0.2%. If...
Cryptic Caveats
Across 120 years of data, the most overvalued markets occurred in 1905, 1929, 1965, and 2000. This excludes today's stock bubble. (See the purple triangles below.) Interesting enough, when one adjusts for inflation, each of the occurrences led to periods of negative...
Slip Sliding Away
The federal government is reining in its direct payments to households. Similarly, the Federal Reserve intends to reduce its money printing (QE) policies – the same policies that have created the speculative belief that our central bank can permanently levitate stock...
When More and More Investors Want Out
Remember the trade war a few years back? The whole goal had been to shrink our trade deficit with China in an effort to enhance the U.S. economy's prospects. Perhaps unfortunately, the U.S. government responded to the coronavirus crisis with far too much stimulus. On...
Five Huge Headwinds for the Stock Bubble
Is the stock bubble about to pop? Maybe not. Then again, patching all of the pinhole pricks simultaneously could prove difficult. Here are five significant headwinds for stocks: 1. Inflation. Few investors pay attention to things like the Baltic Dry Index. That's a...
Going Stag
Consumers are already grappling with the highest inflation in 13 years. The Fed believes it is transitory, but when was the last time companies lowered employee wages after raising them? When is the last time service providers – restaurants, bike shops, accounting...
Shut Up and Dance
Do you ever wonder why bad economic news seems to send stocks higher? For example, industrial production is growing at a slower pace than anticipated. Ditto for manufacturing. Yet stocks seemed to rally on the news. Simply put, poor economic data helps share prices...
An ‘Unforeseen’ Comeuppance
There are smart people on social media. Brilliant people. Yet, many of them have swallowed the bait whole. They believe that the stock market can only move one direction. Up, up, and away. Everyday folks too. Young, old, educated, uneducated... it does not matter. Buy...
Baked in the Cake
Since the early 1970s, the S&P 500 has witnessed average year-to-date gains of 6.0% through August 31. Here in 2021? 20.5%. It is not unusual to see big run-ups in the 10 Minute Bitcoin market. Yet the parabolic rise off the pandemic lows of March 2020 has no...
Borrowed Time
Is the "stock market" really going up? Well, large company share prices are. If you drill down into the mid-sized and small-sized vehicles, however, cracks are beginning to show. Smaller companies are negative on a month-over-month basis. Micro-caps are down even...
Every Stock Season (Turn, Turn, Turn)
The economy has largely recovered from the 2020 recession. And the Federal Reserve is finally thinking about slowing down its money printing stimulus. Perhaps ironically, the stock market is not too happy about it. The S&P 500 has dropped about 2% from recent...
Fed Policy Shift Ahead? Investors Leave Their Heads in the Sand
Government leaders choose to ignore rising food and energy costs when discussing inflation data. Yet, consumer staples companies do not ignore rising costs. Nearly all of them -- Procter & Gamble, Coca Cola, Kimberly Clark, Tyson, General Mills -- are passing...
Betting the Farm on the Fed
According to an index by Goldman Sachs -- an index that takes into account the value of the dollar as well as interest rates -- U.S. financial conditions are easier than they have ever been. Companies and consumers can "borrow-n-spend" like never before. Ultra-loose...
Stock Bubble, Bond Bubble, Real Estate Bubble: Pick Your Poison
The central bank of the United States, the Federal Reserve, exists as an economic savior and as a financial persecutor. As a rescuer, it successfully bailed out the economy during the coronavirus shutdowns by creating trillions in digital dollar liquidity. (See the...
Bubbles Are Unbelievably Easy To Spot
Jeremy Grantham is chairman of the board for the well-known asset management firm, Grantham, Mayo, & van Otterloo (GMO). Yet he is much more than that. He is also an accomplished "bubble-ologist." In a recent interview, Grantham said: "Bubbles are unbelievably...
For Real
The Federal Reserve explains away rising costs across commodities, shipping, food, retail and rent as "transitory." They might be right. On the flip side, the stock bubble is ignoring inflation-adjusted data as it relates to valuation. Specifically, in the three...
Stock Storm
The U.S. Federal Reserve has purchased oodles of assets with electronic currency credits. Funny money. Ditto for the Bank of Japan, People’s Bank of China, and the European Central Bank. Not surprisingly, the more that central bankers add assets to their collective...
Warning: Household Wealth May Be Transitory
Is the stock bubble making investors wealthy? Temporarily. Consider household equity exposure relative to disposable personal income. Investors have more skin in the equity game than they ever have before. What that means is that, with the S&P 500 sitting atop a...
Up, Up and Away
Theoretically, the extent of corporate success (e.g., sales, profits, cash flow, financial health, etc.) propels stock prices. That is no longer the case. For example, one can examine the price-to-sales metric (P/S) by S&P 500 decile. Low valuation deciles might...
Prelude to a Bigger Short
Christian Bale played hedge fund manager Michael Burry in The Big Short. The actor's portrayal of an eccentric loner with genius-like qualities was downright riveting. Of course, it was Burry, not Bale, who anticipated the implosion of the housing balloon. It was...
The Pin That Pricks the Stock Bubble
You hear the stories in everyday life. A neighbor receives $75,000 up and above an astronomical listing price for a home. A friend boasts about making a killing in a crypto like Dogecoin or a meme stock like AMC Entertainment Holdings (AMC). The primary reason for the...
Minding the Bubble’s Skew
Is the stock market overvalued, undervalued, or fairly valued? One of the most popular metrics for making that call is the cyclically-adjusted price-to-earnings (CAPE) ratio. The CAPE ratio, also known as P/E10, has averaged 17.0 since the 1880s. It reached an epic...
Excessive Speculation Rarely Ends Well
Speculation drives market activity more today than it did at any previous moment in history. To wit, short-dated single stock option volume is now 5x greater than it used to be. Think about this for a moment. Rather than invest for a long-term stream of cash flows,...
Bearish on Bonds? Higher Rates Could Crush Stocks
The central bank of the United States, the Federal Reserve, creates digital dollar credits to buy bonds. If you buy bonds to depress interest rates and to inject money into the financial system, you get higher asset prices. Stocks. Bonds. Real Estate. Of course, the...
The Big Shift to “Value Investing”
The federal government continues to hand out borrowed money to stimulate the economy. It is running monstrous deficits to do so. One consequence of spending too much borrowed money? Inflation. Copper, lumber, oil, gas, livestock, agriculture -- you name it. Stuff...
Can You Spare An Inflation-Adjusted Dime?
Inflation is ubiquitous. You are seeing it at the gas pump. You are seeing at the grocery store. You are seeing it when you dine out. Interested in building a patio? An addition to your home? You might be shocked by the cost of lumber. And it is not just wood. Get a...
The Roaring Twenties Redux?
The U.S. economy surged throughout the 1920s. With World War I in the rear-view mirror, consumers spent feverishly on autos, electrical appliances and movies. With the threat of coronavirus fading in 2021, might we be witnessing yet another Roaring Twenties? After...
The Prices Are Not Alright
When you pump $12.3 trillion (and counting) into an economy, things are going to inflate. For example, commodities are going to be more expensive. Take a look at the vertical leap in prices for copper. And lumber. Home prices themselves become bubbly. Home prices have...
Will Cap Gain Tax Hikes Burst The Stock Bubble?
The United States government raised taxes to finance the debt that accrued in World War I and World War II. Today, we are not engaged in a military intervention of monumental magnitude. However, the public debt-to-GDP is greater now than at any other point in American...
Never Has Anyone Ever
Private money management firms often sell at a multiple of revenue. A frequently talked about metric? Price-to-revenue. For example, a wealth management company that generated $1,000,000 over the last year might be valued at 2.25x, or $2,250,000. At least in the...
Lucky 13
On April 13, 2021, the S&P 500 SPDR Trust (SPY) closed above its opening price for the 13th consecutive session. That has never happened in the 28-year history of the exchange-traded fund. Without question, enthusiasm for stocks is feverish. But is it rational?...
In Excess
When does extraordinary excess become visible? In hindsight. Consider the stock market at the start of 2000. Despite ridiculous valuations, scores of profitless IPOs, and an absence of common sense, few seemed to recognize the risks ahead of time. The S&P 500...
Which is Better for Inflation… Stocks or Commodities?
Homes, stocks, junk bonds, you name it. Assets are ridiculously frothy everywhere you turn. The craziness is hardly confined to traditional Wall Street assets, however. Day-trading teenagers with social media cache are getting "rich" on digital NFT Nike art and...
The Less Profitable, The Better?
Somewhat surprisingly, 200 of the 1500 largest companies have proffered negative earnings over three consecutive years. Their stock prices must have suffered, right? Hardly. According to the Leuthold Group, investors have piled into unprofitable corporations more than...
The Harder They Fall
Over the last 40 years, the U.S. government has chosen to spend significantly more money than it takes in. It is the reason that the country must issue trillions of dollars of debt. Spending became particularly obscene during the financial crisis of 2008. And since...
Stimulus Checks and Stocks: Pumping Up a Hot Air Balloon
Investors may or may not be aware of their euphoric attitude toward risk taking. Yet Goldman Sachs data suggest that risk appetite is every bit as extreme today as it was before the dot-com bubble burst in 2000 and before the global financial collapse in 2008....
Rebalancing Act
Institutions -- mutual funds, pensions, insurance companies, corporations, sovereign wealth funds -- often represent smarter money. Indeed, stock prices tend to rise when institutional buying is robust. However, history has been less kind to mom-n-pop investors...