The music died many times in the past. To name a few:
- 1929 Market crash
- 1933 President Roosevelt confiscates citizen gold and declares it illegal to own more than a few ounces.
- 1971 President Nixon “closed the gold window” and severed the last link between the devaluing dollar and gold.
- 1987 Stock market crash
- 2000 Stock market and “dot-com” crash
- 2008 Stock market and housing crash
- 2019? Stock market and “everything bubble” correction/crash
- 2020-2025? “Inflate or Die” QE, bond monetization, helicopter dollars etc.
WHY DOES THE MUSIC STOP?
- Too much credit issued by commercial banks.
- Excessive debt – government, corporate and individual.
- Massive deficits: Government spends far more than its revenues and borrows the shortfall.
- Federal Reserve meddling and policies.
- Wars and catastrophes.
- Political decisions that encourage wealth transfer to the financial elite: 1933, 1971 and 2008 decisions come to mind.
IS THE MUSIC SLOWING IN 2018-2019?
- DAX (German Index) hit its high in January 2018
- FTSE (UK Index) hit its high in May 2018.
- Russell 2000 Index hit its high in August 2018.
- Value Line Index hit its high in August 2018.
- Transports Index hit its high in September 2018.
- But the DOW, NASDAQ and S&P 500 hit new highs in July 2019 on weak momentum.
Consider charts of the Transports and the S&P 500 Index.
- Several broad indexes hit their highs in 2018. Big indexes (DOW etc.) hit momentum peaks in January 2018 and slight new highs in July 2019.
- Will the DOW, S&P and NASDAQ hit new highs?
- When $15 trillion of sovereign debt “pays” negative interest rates and promises to repay those debts in devalued currency units (guaranteeing losses), very little is impossible. Yes, new S&P 500 Index highs are possible.
From Fed Chair Powell:
“We’re going to continue to act as appropriate to sustain this expansion.”
He will do whatever is necessary to boost stock prices, keep Wall Street happy, Inflate or Die, and support the current administration.
Next year (2020) could see higher highs in some indexes as a prelude to the November 2020 election. The Elliott Wave people think so. It appears less likely to me.
CONCLUSIONS RE STOCK MARKET:
- Many stocks and indexes peaked long ago.
- Several indexes made new highs in July.
- Momentum is weak but new highs are possible.
- The risk of a crash is significant, the potential reward from marginally higher prices is low. Why shove capital into high risk, low reward options?
CONCLUSIONS RE BOND MARKET:
- $15 trillion in negative yielding bonds… is crazy.
- Negative yielding bonds show economic weakness and central banker desperation.
- This bond bubble will not end well. Expect large losses and central banker “Inflate or Die” efforts to keep the bubble inflated.
- Devaluation is inevitable.
From Bill Bonner: “How Democracy Doomed the Money System.”
“But most of America’s $72 trillion in debt cannot be repaid. It was used to buy consumer items – tuna sandwiches, vacations, automobiles, pills – and to pay for the feds’ many boondoggles – drones, surveillance, and giveaways.” [Also mortgages on inflated prices for housing, stock buybacks, and student loans…]
“And since it was a consumer-based expansion rather than a capital investment boom, there will be no stream of income flowing from it to pay off the debt.”
“Instead, it’s either Inflate or Die. Either inflation and debt increase… or the boom collapses.”
Examine the following four charts of the S&P 500 Index in 1987, 1999 – 2000, 2007, and 2019: Note labels 1 – 6 (not Elliott Wave labels) on the charts. These labels mark important lows and highs in similar patterns.
Using calendar days:
From Point 1 to Point 2: 139 days, 158 days, 124 days, and 126 days.
From Point 2 to Point 3: 43 days, 61 days, 31 days, and 33 days.
From Point 3 to Point 4: 97 days, 54 days, 56 days, and 53 days.
From Point 4 to Point 5: 38 days, 46 days, 61 days, and 55 days.
From Point 5 to Point 6: 63 days, 111 days, 97 days, and ?? days.
If 2019 follows the pattern (it might not), then the S&P could fall into point 6 around late November to the end of December. Or, this time might be different…
WHY THIS TIME WILL BE DIFFERENT: (Sarcasm alert!)
- Peace has arrived in the Middle East. Past hatreds have been forgiven and forgotten.
- Politicians are truthful in 2019 and will be more honest in 2020.
- Central bankers care about “Main Street” and the bottom 90% of citizens.
- Democrats and Republicans are working together to reduce spending and corruption.
- China, Russia and the U.S. are cooperating for mutual benefit.
- Many of us swallowed the “blue pill.”
- Nobody three putts.
- Tom Brady and the Patriots won only because they were lucky for the past 18 seasons.
- Presidential candidates will agree in 2020 to a new era of political cooperation and sing “Kumbaya” together on national television.
If you are more comfortable with “red pill” realities, consider protecting your savings and retirement with silver and gold, rather than bubblicious bonds, over-valued stocks and nonsensical political promises.