Stock Market

How to Make Sense of This Market

By David Stockman  |  August 30, 2019

Did you know the stock market has basically done nothing for about the last year and a half?

Check it out…

That is only through August 27. But consider the fact that, including yesterday’s action, the S&P 500 Index moved up a whopping 0.005% over the last eight trading sessions.

Talk about sound and fury signifying nothing…

This is Anything But the Greatest Economy Ever

As we discussed during a recent week-long series, we are not experiencing the “greatest economy ever” right now in America. That we’ve simply churned around “Peak Trump” for months now suggests even Wall Street, deep down, knows something’s wrong.

Did you know U.S. investment-grade bond yields are 0.22 percentage points away from their all-time lows?

Indeed, U.S. corporate bonds are tracking to their best August since 1982.

Folks, this rally is about the coming of more “quantitative easing” and the expectation of negative yields on these shores too.

Federal Reserve Chair Jerome Powell’s capitulation this summer set the stage for more easy money, whatever it takes, as it were, to sustain Bubble Finance.

It’s a game-changing move.

Everything the Fed has done – deputized by the Duopoly – in the aftermath of the Global Financial Crisis/Great Recession is rooted in a theory that’s based on making the rich much richer.

On purpose.

We’re Bringing in New Faces

Powell’s Capitulation is the final factor that led us to engage Michael Coolbaugh to navigate an increasingly fraught market, the very volatility of which makes for compelling opportunity.

Of course, as I often note, I’m in my eighth decade, with the good fortune of having accumulated a nice amount of wealth. And my time horizon for generating income is, let’s face it, shortening. So, my No. 1 priority is preserving what we have for my children and my children’s children.

I also recognize that not all of us are similarly situated. We must take on more risk. But we don’t have to be stupid about it.

While it remains my mission to identify the incipient dangers we face as citizen-investors, I’d also like to provide more data and more guidance for you who can, wisely, participate in the inevitable upsides to this present madness.

Michael will be tightly tuned to the market’s trend – and he’ll identify for us the sub-trends that define the larger moves.

On a similar note, the U.S.-China relationship is already defining the 21st century. It’s of critical importance to the geo-macro situation. So, we’ve brought Chris Scott aboard to focus on it.

Beginning Tuesday, September 3, Chris will offer a weekly dispatch on the Trade War, Trump and Xi, and the subtleties of a relationship that precious few of us really understand.

And, beginning next Thursday, September 5, Michael will offer a weekly technical overview of the markets.

Whether you’re well into your golden years or planning for an empty nest; just starting your first job or angling for an executive role; all about Vanguard or a maniacal day-trader; indeed, “red,” “blue,” or “purple,” we’ve got to get this right.

Michael and Chris will help us get closer to that goal.

It Just Gets Wackier and Wackier

Consider the case of Austria’s 100-year bond. “Parabolic” is too soft a term to describe its trajectory.

Austria issued EUR3.5 billion of this “century” bond in September 2017 with a 2.1% coupon.

It issued another tranche of EUR1.3 billion in late June 2019. It was priced at 160% of par to yield about 1.1%. At last check, it was priced at 211% of par.

In less than two years, that bond’s price is up 110%. And its yield has dropped below 0.75%.

What’s supposed to be sober, 100-year sovereign bond is trading like a red-hot initial public offering. And you get greater certainty of massive losses than even flavor-of-the-month/flash-in-the-pan Beyond Meat (Nasdaq: BYND), recently valued at about 130 times sales.

Let’s say the global economy survives rampant statism and corrosive monetary central planning.

Should Austria remain a solvent nation through 2117, in 98 years’ time its “century” bond will be redeemed at par, or EUR100.

No matter how many thousands of times this security is shuffled in the interim – among, it apparently must be said, between a descending chain of Greater Fools – it will lose 53% of today’s purchase price.

In the meantime, it’ll pay a diminutive coupon that barely covers inflation and taxes. That’s to say nothing of the value to an “investor” of giving up the money for 98 years.

There is no good explanation why anyone in their right mind would buy this Austrian bond, or that German bund yielding -0.71%, or the U.S. long bond less than 2%.

Central banks have unleashed runaway speculative mania upon the world’s financial markets.

Approach them smartly, with specific purpose, or not at all.

Stand Your Ground

Desperate times call for… “common sense” measures.

And these are desperate times… Markets are corrupted by monetary central planning. They’re confused. And the road back is going to be treacherous.

We’re looking at a major re-pricing for all financial assets. And thousand-point intraday or day-to-day swings are part of that equation. Those can be frightening… for “buy and hold” investors.

I have a different approach, one that combines strategy and tactics into a plan flexible enough for you to survive and thrive amid the coming chaos. It’s called “The Stockman Model.”

All we’re after is a little stability, perhaps a chance to pocket a windfall when opportunity presents…

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David Stockman

David Stockman is the ultimate Washington insider turned iconoclast. He began his career in Washington as a young man and quickly rose through the ranks of the Republican Party to become the Director of the Office of Management and Budget under President Ronald Reagan. After leaving the White House, Stockman had a 20-year career on Wall Street.MORE FROM AUTHOR