The Dow Jones was up to the week having a BEV plot below closing above its -10% line. Nothing wrong achievable the way it enters its third month correcting from its last all-time high of 26,616 of Jan. 26. As double-digit corrections go, that one is really a fairly wimpy one until now. The Dow Jones’ last correction occurred from May 2015 to July 2016 (fourteen months); twice the Dow Jones dipped below its -12.5% line during the BEV chart below, or 16,000 points at a point chart in August 2015 and again in February 2016. Ever since the Dow Jones has put 2 years and 10,000 points behind it.
Assuming last Friday’s BEV worth of only -11.58% will be the ultimate low of your correction seems slightly unreasonable. Thinking about the gains the Dow Jones makes since February 2016, expecting a correction lasting only a few months could be optimistic. So, if it were a typical bull market, I’d still expect deeper declines within the Dow Jones inside months to come before it again resumes making new all-time highs.
But this isn’t an ordinary bull market and will not be since Alan Greenspan became Chairman within the Fed in August 1987. Here’s a chart plotting the Fed Funds Rate as well as US T- Long Bond Yield from 1954. There’s lots of history in such a chart, but I’ve broken it into three eras:
- “Policy Makers” Fight Inflation (1954-1982). Monetary inflation flowing into consumer prices.
- “Policy Makers” Fight Deflation (1983-2007). Monetary inflation flowing into financial asset valuations.
- “Policy Makers” Fight for his or her Lives (2008-2018). Risks of a catastrophic deflationary depression dominate “monetary policy.”
During the fighting inflation phase below, long bond yields (Red Plot), and Fed Funds Rate (Blue Plot) increased from low single digits to in excess of 10%. In July 1981, Fed Funds peaked at 22%!
Bond yields were rising in reply to “monetary policy” inflating consumer prices. The Fed Funds Rate was rising since the FOMC routinely increased its Fed Funds Rate above bond yields, looking to check rising consumer prices by allowing the economy in to a recession. And also the higher bond yields rose, the larger the FOMC was required to raise its Fed Funds Rate to invert the yield curve.
It wasn’t working. Consumer prices continued absorbing excess dollar production on the Federal Reserve just like a sponge. Because of the late 1970s, CPI inflation had increased to double-digit percentages as gold and silver took over as investment associated with preference by many people.
Here’s a smaller sample of articles provided by Barron’s in those times. These articles covered topics the financial media hadn’t discussed about for years, but frequently did when bond yields increased from 1950 to 1981.
Summarizing 1954 to 1982, the Federal Reserve’s inflationary monetary policy pushed the call market to a 28-year bear market. From 1966 to 1982, the stock market also underperformed increases in consumer prices.
The Fed’s response to rising consumer prices (rising bond yields) ended up being to invert the yield curve; strengthen their Fed Funds Rate throughout the yield for all of us long-term T-bond, creating the economy to a recession. What is unique during the chart below is how frequently the Fed inverted the yield curve, and exactly how far beyond bond yields they had been prepared to push their Fed Funds Rate to confirm consumer price inflation.
But inverting the yield curve was without the preferred effect of containing rising consumer prices. Consumer prices were rising given that the Federal Reserve was issuing paper dollars into circulation for longer than what are the Bretton Woods $35 gold peg allowed. However, from January 1979 to October 1982, then Fed Chairman Paul Volcker increased his Fed Funds rate beyond long bond yields, and held them there more than a couple of years. Inflationary dollar flows streaming in the Fed stopped flowing into consumer prices, and commenced flowing into financial asset valuations.
The net effect of your change in monetary inflation’s destination from consumer prices to financial assets was that consumer price inflation ceased being a concern to your public. After 1982, people became enamored with buying “bull markets” on Wall Street.
Which raises the 2nd phase on the chart above, when the “policy makers” focus became an example of fighting deflation in financial asset valuations. What changed? Before 1983 inverting the yield curve (increasing Fed Funds above bond yields) checked inflationary increases in consumer prices, or possibly even longer the “policy makers” hoped. Even so was something the government Reserve needed to do. So earlier than 1981, they weren’t afraid to improve their Fed Funds Rate far above bond yields.
However, after 1982 when monetary inflation began flowing into financial asset valuations, inverting the yield curve triggered bear markets on Wall Street. So, fighting price inflation in financial assets triggered making voters poor. I thought this was something the “policy makers” were loathed to accomplish, as demonstrated via the tiny increases of the Fed Funds Rate above bond yields since 1982.
The first post-1983 yield curve inversion (chart above) deflated the bubble inside leverage-buyout scam along with the junk bond market (late 1980s to early 1990s). The second yield curve inversion (chart below) deflated the high-tech stock bubble of your 1990s, plus the third deflated the sub-prime mortgage bubble. Go through the 2005-09 period below. This tiny inversion in the yield curve resulted in your second deepest Dow Jones bear market since 1885.
Now we go to our present era, when the “policy makers” are fighting regarding their lives. Let’s consider it how it’s, an act of desperation to reflate the economy and stock markets right after the sub-prime mortgage bubble began deflating, while not destroying the international overall economy.
The “policy makes” lowered their Fed Funds Rate to an effective Zero % from November 2008 to December 2015 (seven years). But that wasn’t enough, as with January 2011 additionally they implemented the fact that was then called “Operation Twist”, the spot that the FOMC began using their inflationary dollars buying long lasting bonds just for lowering extended bond yields to “stimulate growth” throughout the market.
In the chart above, it’s obvious how for your third level of the 21st century the FOMC is now increasing its Fed Funds Rate toward the long T-bond yield. As soon as the “policy makers” once more invert the yield curve, the outcomes will not be any distinctive from after this happened in 2000 and again in 2007; an important bear market in whatever financial assets whose valuations they already have inflated. Today, it is simply about everything apart from gold, silver as well as metals miners.
It may very well be years prior to this happens. But because the existing inflationary bubble while in the markets is historic, there isn’t any reason Mr. Bear wouldn’t begin deflating the financial markets on his schedule, not the FOMC’s. So, this is the reason I’m reluctant being strongly bullish or bearish for that wall street game currently as Mr. Bear doesn’t need to visit with an inversion within the yield curve before he begins his work on Wall Street. However, for gold, silver along with the companies who mine them, I’m really bullish for the children long-lasting for the exact same reasons I’m bearish on the rest.
The frequency tables listed here are for any three eras shown while in the charts above. They record what number of percentage points the Fed Funds Rate was above, or within the long T-bond yield in relation to weeks. If the Federal Reserve makes “money tight”, the Fed Funds Minute rates are higher than bond yields, which results in deflation in valuations somewhere throughout the economy, plus the higher on-line, the tighter money is now. When cash is “loose”, the Fed Fund Rates are below bond yields, recorded by negative values in the tables below, plus the lower Fed Funds is below bond yields, the looser monetary policy is.
The most informative section of these tables is noted inside total section listing the percentages of weeks tight and loose. From 1954 to 1982, the FOMC had the yield curve inverted for 30% on the weeks. From 1983 to 2007, the yield curve was inverted total price 14% of the weeks. And also this point misses the amount which monetary policy had tighten or loosen money, easily witnessed in an easy study within the yield inversions of your three tables.
But from January 2008 right now, the FOMC hasn’t inverted the yield curve for only one particular week for concern about the deflationary consequences for bonds and stocks as long as they implement it. When i visualize it, the stock markets today are located on a powder keg which could inflate anytime. Though the Dow Jones within 10% of the company’s last all-time high, it may possibly still will continue to new all-time highs within the weeks and months into the future.
Let’s proceed to the Dow Jones (Blue Plot) as well as its 200 count (Red Plot) below. Needless to say, the Dow Jones began having difficulty if this began producing daily moves much more than 2% off their previous day’s closing prices.
The reputation this data series proves there’s extra money to generally be lost than constructed with contact with the stock exchange once the above red 200 count plot is rising. Currently, the count is just a five, nevertheless the correction is barely sixty days old.
There’s nothing wrong exiting the stock exchange and taking your money with you, and this also looks like one of those times. Should these trends continue, on a daily basis is nearly here should the Dow Jones will discover a bottom far away from where its today, since its 200 count rises up towards and maybe exceeding its highs of 2009. This is how these data series will build up a very good buy signal should the Dow Jones’ 200 count begins declining by reviewing the bear market high.
Look around this chart and in what way making use of it provided almost perfectly timed and profitable entry and exit points in the past thirty years. Precisely the same was true to your Roaring 1920s and depressing 1930s! Using a superb track record which goes back well before anybody were even a twinkle within our mother’s eyes, seeing the Dow Jones 200 count in early April 2018 rise from zero to the five before a couple of months motivates me to get out, and stay out of bonds and stocks.
This will probably be my position till the 200 count begins declining as it did in 2003 and again during the past year. Note: would the Dow Jones increase just as soon as again make several new all-time highs, this could not negate the sell signal. Then again, seeing this sell signal doesn’t reveal the length of time we’ll have to hold back until Mr. Bear begins feeding on inflated market valuations either. Remember, 2018 is a second election year in the nation, as well as the powers that be can’t stand rocking the boat in election years.
Here’s the Dow Jones Total Market Group’s (DJTMG) top 20. It closed a few days at 50 of 74 groups within 20% of their total last all-time high. I’m sure we’re still was developed phases on the massive bear market, a period when investors and “market experts” still expect more at a dying or dead bull market.
Is there whatever could change my mind with that? There sure could be the bulls while in the FOMC could attempt to “inject” some “liquidity” to the overall economy and obtain the groups seen below moving back to the left, where they had been in January. But after nine weeks of lower valuations while in the DJTMG, they haven’t done that yet.
Bond yields (Red Plot below) ‘re going down, but long-term factors continue driving them higher from the months and quite a while. The hyperlink market has been a bull market since October 1981 once the US Treasury actually sold long bond using a 15% coupon. In August 2016, yields bottomed (bond bull market ended) by using a 30-year T-bond issued with a 2.25% coupon. As seen below, yields are actually rising, and costs falling from the time.
The thing to take into account with your bond yields is that often Wall Street had bundled a couple of hundred trillion dollars of interest-rate derivatives in the debt market. With yields and rates in their current levels, these derivatives are worthless, and for that reason no trouble. I’m not sure the spot that the trip wire is with the bond market, but I expect that somewhere within 3% and 5% in this bond, Wall Street may get out of bed to the fact that its big banks are bankrupted by numerous trillions in counterparty obligations they are unable to honor.
That’s what exactly happened throughout the 2007-09 credit crisis. The federal government and Fed bailed out the big banks then, but they can they it again? I do think not.
That seems for being the opinion within the market. Examining the DJTMG’s Banking Index’s BEV chart below, the banks are among the few indexes during the DJTMG that in April 2018 failed an extra chance, and exceed its pre-credit crisis valuations. These banks were ground zero within the sub-prime mortgage crisis, declining over 85% off their 2007 highs. While in the credit crisis, the costa rica government and Fed sent trillions of dollars in bailouts their way, nevertheless after nine years, they’ve yet to interrupt above their highs of 2007? That can’t be good.
What would their losses happen to be once they weren’t bailed out? I believe we’d can see this BEV plot hit the dreaded -100% line the total wipeout line.
Gold’s step sum chart below looks good.
A lot greater than the step sum chart with the Dow Jones below. I am not sure exactly what the future holds, but looking at this chart it appears the Dow Jones is more gonna break below 23,000 than break above 25,000. In addition to being goes the Dow Jones, so goes the broad market. But just like me, my readers will just need to wait to check out just what markets offer us inside the weeks into the future.
In gold as well as the Dow Jones’ step sum tables below, they have both seen more declining than advancing days since Feb. 23. But gold has weathered the storm better than the Dow Jones. Before 25 trading days, gold is down by only 0.25%, as the Dow Jones has declined by 4.77%.
I’m expecting this strength, gold’s refusal to decline in valuation from a market covered with declining days to go on. Sometime in one’s destiny, we’ll see gold’s 15 count become positive, indicating the gold companies are seeing more advancing than declining days. It will probably be interesting seeing just how the price of gold responds to your 15 count of say +4, where there are seen only four declining days during the counts’ 15 days.
The Dow Jones’ bull companies are an aging bull. If ever the bulls (the FOMC and Wall Street) can’t get its 15 count back into the positive soon, we’ll see deeper declines while in the stock exchange.
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