Thursday, 8 July 2021 — Wollongong, Australia

By Greg Canavan Editor, The Rum Rebellion

[7 min read]

Dear Reader,

US stocks had a decent session overnight. The Dow and S&P 500 were up 0.3%, while the NASDAQ was steady. Aussie stocks are set for a modest open after a strong day yesterday.

The stock market rally just grinds on relentlessly.

Meanwhile, the bond market has another set of concerns entirely. As the Wall Street Journal reports:

‘Yields on U.S. government bonds reached fresh multimonth lows on Wednesday, reflecting investors’ anxiety about the economic outlook and new concerns about the highly contagious Delta variant of Covid-19.

‘The yield on the benchmark 10-year U.S. Treasury note settled at 1.321%, its lowest close since Feb. 18, compared with 1.369% on Tuesday. 

‘Yields, which fall when bond prices rise, have been trending lower for months, dragged down by investors reassessing their more optimistic economic forecasts amid signs that Congress and the Federal Reserve might not provide quite as much stimulus as previously anticipated. Underwhelming economic data has added to those concerns, along with new data from Israel suggesting Pfizer Inc.’s vaccine is less effective at protecting against infections caused by the Delta variant.’

There’s a lot to unpack there.

Firstly, understand what falling bond yields mean. They reflect the opinion of bond investors that the economy is slowing, and inflationary concerns have receded. All the hype and hysteria about ‘the coming inflation’ has simply distracted investors to what’s really going on.

And that is a broader concern about the ability of the global economy to hold up once fiscal and monetary stimulus start to wane.

Overnight saw the release of the Fed’s minutes from their mid-June meeting. It revealed a discussion about when to start scaling back on bond buying.

The bond market is saying the Fed has it wrong. The Fed is concerned about growth and inflation, the bond market is concerned about the removal of monetary support causing another downturn…or at least a slowdown.

Then there’s the ongoing concern around the virus. The dreaded ‘Delta variant’ (DV) is more infectious but less deadly than the Wuhan lab variant. But you wouldn’t know it based on the fearmongering of our politicians.

Even the left-leaning Financial Review is waking up to the game (12 months too late) being played by our elected leaders. Here’s some rare, rational analysis:

‘As reported on October 20, 73 per cent of Australians who have died with COVID-19 had at least one (and often multiple) other pre-existing comorbidities, death certificate data reported by the Australian Bureau of Statistics show. These included dementia (41 per cent), chronic cardiac conditions (32 per cent), diabetes (17 per cent) and hypertension (16 per cent).

‘The average age of COVID-19 deaths in Australia is 85 years — above the age of life expectancy.

‘Yet our scare-mongering politicians and bureaucrats have terrified millions of relatively healthy and non-elderly people to believe they are at serious risk of dying or getting very sick from the virus.

‘In the United States last year before vaccinations, the estimated COVID-19 infection fatality ratio (IFR) was 0.002 per cent for under 18s, 0.05 per cent for people aged 18 to 49, 0.6 per cent for 50-64 year olds and a significantly higher 9 per cent for those aged over 65, the US Centres for Disease Control and Prevention says. The most vulnerable are now overwhelmingly vaccinated.’

More people than you think see it this way. That’s why the government needs to sell its vaccination strategy by planning a celebrity advertising campaign. Nothing reeks of desperation more than being lectured to by celebrity elites.

More money down the drain…

Meanwhile, I would argue the bond market is concerned about the response to the DV, rather than the DV itself.

The equity market though isn’t concerned at all. Indices in Australia and the US are at or near all-time highs.

But as I’ve been telling subscribers of my advisory, I think we’re getting closer to correction time, or maybe even a decent bear market.

And on that front, I’m watching the NASDAQ closely. I was looking through some charts yesterday and came across a disturbing picture. Usually, I look at charts to find stock opportunities. I mostly confine my searches to the daily charts.

That is, charts that contain daily price action.

But occasionally I’ll look at longer time frames, like weeklies and monthlies. These offer you a higher-level view of what’s going on in markets or individual stocks.

On this front, the weekly chart of the NASDAQ 100 is flashing warning signals. While the price action has been consistently impressive, it’s the underlying momentum that is of concern.

I’ll show you what I mean…

I use the more concentrated NASDAQ 100 here because it better reflects the huge amount of capital flowing into the mega-cap tech stocks like Apple, Amazon, and Microsoft.

Since the COVID crash, the NASDAQ quickly recovered and reached its old highs by June 2020. Since that time, the index has soared 55%!

Yet on the weekly chart, the peak for momentum (as measured by the relative strength index) was on 17 January 2020. In the huge post-COVID rally, momentum has never beaten that level.

That’s not a big deal itself. But the main point to note is the extreme divergence between price and momentum. Such extremes are rare events. It doesn’t always mean that a correction is imminent. This is a weekly (longer-term) chart, remember.

And it doesn’t say anything about the magnitude of the potential decline. You might just see a short-term minor correction, or a deeper, longer bear market.

My guess is on the latter. The NASDAQ has been in a bull market since 2009. I see the move from the 2020 lows to now (a 50%-plus surge) as a blow-off top.

Tech investors may want to take some money off the table.

Regards,

Greg Canavan,
Editor, The Rum Rebellion

By Bill Bonner Editor, The Rum Rebellion

Today, we’re still thinking about thinking, and how little of it the thinkers do. Later in the week, we’ll look at how they prevent others from coming to conclusions of their own.

The Financial Times (FT), like The Economist and The Wall Street Journal, is a must-read for the economically-literate elite. Princes and policymakers all over the planet have it on their desks. They get much of their information and many of their opinions from it.

Here in little Youghal, Ireland…the local gas station has a single copy of the FT, which it puts aside for us. The only other place in town that carries the paper is the card shop, where the lonely copy stays on the shelf.

Many of the opinions in the FT show some real thinking, especially on matters of markets, investments, and personal finance. Our friend, Merryn Somerset Webb, for example, a regular columnist, is always a source of good advice and practical thinking.

Huge reward

But when the ‘pink paper’ turns to economic policy, the thinking stops. As we will see, people come to think what they need to think when they need to think it.

And today’s elite must think that:

1. They are doing the right thing, and
2. Many of today’s problems would go away if they were allowed to do more of it.

The reward for this kind of lite thinking is huge.

The most elite of the world’s elite are probably the US’ top 400 families — less than 1% of 1% of 1% (0.00025%) of the US population.

40 years ago, they had wealth equal to about 2% of GDP. Now, they have 10 times as much — nearly 20%, a gain of about US$4 trillion.

But we don’t trust any statistics unless we make them up ourselves. And our own estimate is that the top 10% of the population — roughly, those who own most of the capital assets — gained about US$30 trillion over the same four decades.

We get the figure by comparing the value of household assets (stocks, bonds, real estate, savings) to GDP. Grosso modo, household assets were equal to about four times GDP…from the end of the Second World War to the beginning of the 1980s.

After that, assets shot upwards. Now, they total seven times GDP. That difference is about US$60 trillion, of which more than half went to the top 10% — for a gain of at least US$30 trillion.

Elite manipulation

So where did all that new wealth come from? Not from selling more goods and services to the common man. GDP just chugged along as usual.

And during that period, guess how much the typical working man’s wages rose in real terms. Zero. His inflation-adjusted earnings are about the same today as they were when people were listening to Rod Stewart on the radio, singing ‘Do ya think I’m sexy?’.

So, how come the rich today are so much richer than the rich then?

That is the sort of question you’d think the thinkers ought to think about. Here at the Diary, we’ve answered it, at least to our own satisfaction: the Federal Reserve pushed up asset prices. The rich own assets. Ergo, the rich got richer.

But that answer draws ‘a’ (above) into question, leading people to wonder if there weren’t something underhanded about the fake money system.

Instead, without ever really understanding the problem, the elite propose ‘b’…solutions that involve more manipulation by the elite themselves.

Past is past

More evidence of this phenomenon came last weekend, with a column by Rana Foroohar in the FT. Ms Foroohar celebrates the latest move by the forward-looking Biden administration with the headline ‘America (finally) gets an industrial strategy’:

‘[An industrial policy] isn’t about picking winners but simply bringing a smidgen of strategic and long-term foresight to the way America’s economy is run. In a world in which we have to compete with state-run giants like in China, that think on 50-year time horizons, quarterly capitalism simply doesn’t cut it any more (not that it really ever did).’

Good thinking, right? Prepare, plan, plot for the future…even 50 years ahead.

Improving life on planet Earth seems like a worthy goal. But it depends on the most uncertain part of the time spectrum. There is nothing the improvers can do about the past. It has already happened.

Wars…deadhead policies and programs…mass murders, government-enforced famines, deportations, ethnic cleansings, depressions (all of them caused by the elite)…

…all are history. Nothing can be done about them now.

So let’s move on.

Future planning

In our private lives, we are always planning for the future. We plant trees, we write wills, we buy insurance. The future is the only part of our lives we can do anything about.

In private policy, planning for our own futures, we at least know what we want. We have a fair idea where we’re going and what means we have to get there.

And if we end up somewhere else, it’s our own damn fault for not planning better.

But planning for others…for a nation of 330 million others? It’s a whole different thing.

What does the unemployed steelworker want? What about his wife? What will they want in 50 years? And the immigrant from Bangladesh…what’s he after?

And what will the price of oil be tomorrow? A year from now? 10 years from now? What about the birthrate? How many people will get COVID-19? COVID-20? How many will still use email? Will Amazon still exist? Will it deliver via drone?

Who knows? Not Ms Foroohar. Or anybody else who says this strategic planning will help ‘forward climate and equity goals’.

Elite goals

But whose goals are those?

What a surprise…they’re the goals of today’s elite! Thus does the bamboozle come into clearer focus. The planning has nothing to do with adapting to the future (the planners have no way of knowing what it will bring).

Instead, it is intended to bend the future in their direction…to create the kind of world the planners want now.

Tomorrow…we’ll look at the sad world the elite of 50 years ago might have planned for us…had they thought about it.

Regards,

Bill Bonner,
For The Rum Rebellion