As we had forecast in July, when the U.S. equity markets were still rising high, they would decline sharply in September and October.
It was an upbeat mood yesterday as gamblers on The Street bet that the big tech companies would boost bigger profits for the year. And while the Dow spiked more than 500 points and the S&P 500 and Nasdaq each moved up 1.2 percent… the S&P and Nasdaq, down more than 10 percent from their highs, are still in correction territory.
Again, we had forecast last November that the S&P would spike at least 16 percent this year and it did… spiking up nearly 20 percent. But now it is down some 13 percent from its January 2022 high.
And while the Street is focused on the U.S. equity markets, pick up The New York Times and The Wall Street Journal and read their market reports on Saturday as to what happened to equities on Friday. Not one sentence about the Asian or European markets and what in the world is going on in the rest of the world’s economies. Again, not one word.
And yesterday, the WSJ ended its MARKETS report with this final sentence: “Overseas, the Stoxx Europe 600 rose 0.4%, while Japan’s Nikkei 225 fell 1%.”
That’s all folks…nothing on the EU side about Germany, the largest economy in the EU, teetering on recession as its Gross Domestic Product slumped 0.1 percent in the last quarter. And today, Italy, the third-largest economy in the EU, which saw its GDP fall 0.4 percent in the second quarter, reported that its economy stagnated in the third quarter.
Meanwhile, as its economy is in recession territory core inflation for October hit 4.5 percent, down just 0.4 percent from the month before.
Therefore, the bottom line is Dragflation for Italy, Europe, and much of the world: Declining economic growth and rising inflation. A trend that we had long forecast that the mainstream media refuses to acknowledge. Indeed, they still sell the old line of “stagflation.”
And going back to the mainstream business media barely reporting on what in the economic world is going on, again in both the NYT and the WSJ’s weekly wrap-up, not a word about the Hang Seng Index or the Shanghai index.
The Shanghai- and Shenzhen-listed stocks CSI 300 index is down some 15 percent this year in dollar terms, slumping to pre-COVID 2019 levels.
Repeating what we had warned on 3 January when we published our Top Trends for 2023 “Middle East Meltdown”—that war between the United States and Israel vs. Iran would escalate this year and oil prices would spike—yesterday the World Bank echoed our warning. See:
- “MIDDLE EAST MELTDOWN: ISRAEL LOOKS TO SAUDI ARABIA TO COUNTER IRAN” (21 Feb 2023)
- “SPOTLIGHT ON GAS AND OIL” (14 Mar 2023)
- “ISRAEL PUSHING U.S. TO FIGHT IRAN” (18 Apr 2023)
- “OIL PRICES PASS $90 AS MIDEAST WAR ESCALATES” (17 Oct 2023)
- “ECONOMIC UPDATE – MARKET OVERVIEW” (24 Oct 2023)
Now that the Israel War has officially begun, and as we note in this and previous issues, the U.S. and Israel are ramping up military engagement, the World Bank predicts that if the war escalates Brent Crude will spike above $150 a barrel.
The bank said the latest conflict in the Middle East comes on the heels of the biggest shock to commodity markets “since the 1970s Russia’s war with Ukraine.”
TREND FORECAST: Although down from the 37 percent of global oil exports from the 1970s to 30 percent of global oil exports from the Middle East, the World Bank claims that the global economy is in better shape than when OPEC cut off oil exports as a result of the U.S. and its western allies supporting Israel’s 1973 Yom Kippur war… we disagree.
The current Israel War is far more threatening to both Israel and the world than the 1973 Yom Kippur war in that the world has changed dramatically since then. On the Israel War front, besides support for Israel from the United States and its allies, much of the world has become anti-Israel as they commit open-air genocide against Palestinians in Gaza and escalate the slaughter of Palestinians in the West Bank for all to see.
Yes, for all to see, it is being “televised.” As reported by Consortium News today, “The mass murder of innocent Palestinian civilians by Israel continues, with the bombing of the Jabaliya refugee camp north of Gaza City on Wednesday. History has seen a procession of genocides. But this is the first to be televised.”
Thus, their militaries are much more powerful and their economies are much larger today than back in 1973.
Thus, even with a loss of 7 percent of providing global oil supply since the 1970s, should the Middle East cut off oil to the U.S. and its European allies, what the Bank did not note, is that should Russia also cut back supply as the Ukraine War continues, oil prices will spike to unforeseen levels which will in turn crash the global economy and global equity markets.
And as Gerald Celente notes, when the economy crashes wars heat up because “When all else fails, they take you to war.” And this time, WWIII will escalate to nuclear war… so the price of oil, wheat, dairy products, etc., won’t matter as much of life on earth will be destroyed.
The Big News
Of course, all eyes will be on what the U.S. Fed says tomorrow about its current and future interest rate policy.
With the bet that they will keep rates where they are, we maintain our forecast that they will definitely lower them in the run-up to America’s 2024 Presidential Reality Show® in their effort to keep those in power… in power. Indeed, the woman in charge of the U.S. Treasury, Janet Yellen, was the former Fed-Head before Biden brought her to the White House.
TREND FORECAST: Thus, once again it is there for all to see, but most are too ignorant, too blind or lack the courage to admit to the truth: Right in front of everyone’s eyes the Bankster Bandits are running America. And with a $33.5 trillion dollar debt load, they, with their cheap money policy, quantitative easing, etc., are helping to destroy the U.S. economy.
Again, we maintain our forecast that as interest rates go lower, the U.S. dollar will decline and gold prices will soar.
LAST WEEK: WORST OF THE YEAR
On 27 October, the Standard & Poor’s completed its worst two-week stretch of 2023, entering a technical correction, defined as a decline of between 10 and 20 percent after a series of strong gains, according to The New York Times.
For the week, the Dow Jones Industrial Average dropped 1.75 percent, closing at its lowest level since March. The NASDAQ and Standard & Poor’s 500 index both fell 2.2 percent.
The S&P’s gain for this year has been slashed to 7.2 percent from the 20 percent it had added by 1 August.
The Dow and S&P are ending October with three consecutive losing months, a slide not seen since the quarter ending 31 March 2020 at the beginning of the COVID War.
The Russell 2000 index of small companies shrank by 2.6 last week and ended at its lowest value in three years.
Climbing bond yields, and bonds’ safety, have lured investors away from a riskier equity market, driving stock prices lower. The price of treasury bonds dropped sharply as new issues have flooded the market, once again driving up yields. Bond yields rise as prices fall.
Also, disappointing earnings reported last week by Alphabet, Chevron, and Meta spooked investors.
Many asset managers have cut their allocations to stocks down to October 2022 levels, the end of that year’s 10-month bear market, according to a survey by the National Association of Active Investment Managers.
Short positions—bets that stock prices will fall—have been growing in number for three months, Goldman Sachs Group reported, the longest such increase since it began tracking the statistic.
The CBOE Volatility Index, a measure of investors’ jitters, poked up above 20 last week, registering an expectation of market volatility not seen since March.
“The stock market is going to have to fall to valuation levels that are more in line with historical levels,” Matt Maley, chief market strategist at Miller Tabak, told Bloomberg. “The most important issue is the very large divergence between the bond market and the stock market.”
Gold’s continuous contract was up 1.8 percent over the week to $2,016.30 at 5 p.m. U.S. EDT on 27 October.
Brent crude oil seesawed through the week to end flat at $90.48 per barrel at 5 p.m. U.S. EDT on 27 October. West Texas Intermediate, the standard for U.S. domestic oil prices, slipped 1.6 percent to $85.54.
Bitcoin rose 2.7 to trade at $33,870.90 at 5 p.m. U.S. EDT on 27 October.
The yield on the benchmark 10-year treasury bond held steady Friday at 4.845 percent. The two-year bond’s return slipped to 5.015 percent Friday from 5.039 percent Thursday.
Elsewhere, stocks were mixed.
The London FTSE 100 lost 1.5 percent for the week. Europe’s Stoxx 600 ticked down 0.97 percent.
The Japanese Nikkei 225 gave up 0.5 percent. South Korea’s KOSPI retreated 2.8 percent.
Chinese stocks were buoyed by news that the government is expanding its economic rescue plan. (See “China Shifts Strategy, Announces Stimulus Spending” in this issue.)
The Hang Seng index in Hong Kong added 1.6 percent, the CSI Composite was up 1.78 percent, and the SSE Composite expanded by 1.6 percent.
YESTERDAY: DOW UP, FEAR LOOMS
The Dow Jones Industrial Average was up 511.37, or 1.58 percent, to 32,928.96 and the S&P 500 was up 49.45, or 1.20 percent, to 4,166.82. The tech-heavy Nasdaq was up 146.47, or 1.16 percent, to 12,789.48.
Stocks were up while the Israel and Ukraine wars rage and the Federal Reserve’s two-day meeting looms. The CME FedWatch Tool gives it a 75 percent chance that the central bank keeps rates in place.
“The Fed won’t be compelled to raise interest rates at this meeting because higher bond yields and mortgage rates have further tightened monetary policy on their own,” Greg McBride, the chief financial analyst at Bankrate, said.
TRENDPOST: It is worth noting that Washington will do all it can to artificially prop up the equities market as the wars continue to heat up.
It is also ironic that the people who got us into this mess are the ones tasked with saving the economy.
Stanley Druckenmiller, the famed investor, asked how it was possible that Treasury Secretary Janet Yellen still has a job after missing a chance to issue more long-dated Treasury bonds when interest rates were at about zero—“and every Tom, Dick and Harry in the U.S. refinanced their mortgage.”
“Here’s the consequences, folks. When the debt rolls over by 2033, interest expense is going to be 4.5 percent of GDP if rates are where they are now. By 2043, sounds like a long time but it is really not, it is 20 years, interest expense as a percentage of GDP will be 7 percent. That’s 144 percent of all current discretionary spending.”
“So the politicians who are telling you, and who think they are not going to cut entitlements, it is just an outright lie,” he said.
Elsewhere, London’s FTSE was up 36.11, or 0.50 percent, to 7,327.39 and the STOXX600 was up 1.54, or 0.36 percent, to 431.12. In Asia, the Nikkei was down 294.73, or 0.95 percent, to 30,696.96 and South Korea’s Kospi was up 7.74, or 0.34 percent, to 2,310.55. Hong Kong’s Hang Seng was up 7.63, or 0.04 percent, to 17,406.36. China’s Shanghai Composite was up 3.77, or 0.12 percent, to 3,021.55. The Shenzhen Component was up 157.15, or 1.61 percent, to 9,927.99.
OIL: Brent crude for December delivery sank $3.03 to $87.45 a barrel while West Texas Intermediate fell nearly 4 percent to $82.31 a barrel.
The oil market has been watching the war in Israel and Prime Minister Benjamin Netanyahu indicated yesterday that a full ground invasion was imminent.
The World Bank said oil prices could be pushed into “unchartered waters,” if the war expands. The bank considered a “large disruption” scenario where the global oil supply falls to about 6 to 8 million barrels per day. This would send oil prices up to $157 a barrel, the bank said.
“If the conflict were to escalate, the global economy would face a dual energy shock for the first time in decades—not just from the war in Ukraine but also from the Middle East,” Indermit Gill, the World Bank’s chief economist, said, according to The Associated Press.
TREND FORECAST: The Western world has gone mad and there have been no calls for a ceasefire in Gaza. The confrontational tone from Turkey and Israel’s insistence that it is fighting a holy war only means that there is no off-ramp.
GOLD: Spot gold fell 0.4 percent to $1,998.47 an ounce and U.S. gold futures ended the day 0.4 percent higher to $2,005.60.
Like the oil market, traders were keeping a keen eye on Israel and have been attractive as a safe-haven asset.
“Gold has a unique status among assets, because its price often increases with rising geopolitical concerns,” the World Bank outlook report on commodity markets said. “In the event of a more widespread conflict in the Middle East, gold prices would likely increase from already high levels as investors shift to safe-haven assets.”
TREND FORECAST: We still consider gold the safest hedge as WWIII has escalated from the Ukraine War to the Israel War. And, should oil prices spike to levels that we note above in our ECONOMIC UPDATE section of this week’s Trends Journal, gold prices will spike toward the $3,000 per ounce range.
BITCOIN: The world’s most popular crypto was trading lower at 3 p.m., down $185.40, or 0.54 percent, to $34,349.00.
Bitcoin has been on a winning streak and was up more than 14 percent last week and 30 percent over the past two weeks.
TRENDPOST: A bitcoin ETF approval in the U.S. continues to have crypto-enthusiasts excited. Watch for more investments and higher valuations based on rumors. And, again, our forecast over the past year that Bitcoin would rise to the current level and above is on-trend.
TODAY: DOW UP AS ISRAEL WAR WORSENS
The Dow Jones Industrial Average finished the day up 123.91, or 0.38 percent, to 33,052.87 and the S&P 500 gained 26.98, or 0.65 percent, to 4,193.80. The tech-heavy Nasdaq was up 61.76, or 0.48 percent, to 12,851.24.
All eyes were on the two major wars and the result of the Federal Reserve’s two-day meeting that will lay out the central bank’s plans for interest rates. The Street is anticipating a relatively dovish announcement.
Benchmark 10-year yields were last at 4.875 percent, which is lower than the 5.071 percent about a week ago. The 2-year note was up to 5.071 percent, down from 5.259 percent earlier this month.
Elsewhere, London’s benchmark FTSE closed down 5.67, or 0.08 percent, to 7,321.72 and the STOXX600 was positive, up 2.54, or 0.59 percent, to 433.66. The Asian market was mostly down. Japan’s Nikkei was up 161.89, or 0.53 percent, to 30,858.85 while South Korea’s Kospi was down 32.56, or 1.41 percent, to 2,277.99. Hong Kong’s Hang Seng was down 293.88, or 1.69 percent, to 17,112.48. China’s Shanghai Composite was down 2.78, or 0.09 percent, to 3,018.77 and the Shenzhen Component fell 64.19 to 9,863.80.
The news out of the EU has been bleak. Eurostat, the statistics agency, said today that the bloc’s economy contracted 0.1 percent in the third quarter—which was worse than economists thought, according to CNBC. (Economists were expecting stagnation, not decline.)
Inflation there came in at 2.9 percent in October, which was lower than anticipated.
TRENDPOST: It is worth noting that Caterpillar, the big machinery maker, saw shares fall 6 percent over slowing demand. Reuters noted that “The company’s order backlog fell $2.6 billion in the third quarter, which was seen as a negative indicator.”
While the U.S. infrastructure rots, the main discussion in Congress today was whether the $100 billion plus military aid packages for Israel and Ukraine should be separate or bundled together.
OIL: Brent crude settled 4 cents lower to $87.41 a barrel and New York-traded West Texas Intermediate was down $1.04, or 1.25 percent to $81.28 a barrel.
Prices were down as traders saw some optimism that the Israel War could be contained and that supplies would remain strong. There was also a feeling that the coinciding wars have already been priced into oil prices.
TRENDPOST: There’s a feeling in the oil market that the U.S. dollar may have already hit its peak as economists believe the U.S. Federal Reserve will keep the overnight rates in place. There is also concern on the oil supply side that China’s economy remains weak, which is an inherent problem for the market given that Beijing is the world’s biggest oil buyer.
China’s manufacturing purchasing managers’ index was 49.5 in October, which was lower than the reading of 50.2 in the previous month. A reading below 50 marks contraction against the previous month.
We have greatly detailed where the Chinese economy is and where it is going in the SPOTLIGHT ON CHINA articles in this week’s Trends Journal and where the oil prices are heading in our ECONOMIC UPDATE section.
GOLD: Spot gold closed the day down $12.20, or 0.61 percent, to $1,983.30. December gold futures were up 0.20 percent, to $2,009.70 an ounce.
The precious metal, which is considered a safe haven during economic trouble, fell amid a slightly better reading from The Conference Board today that showed some optimism by the U.S. consumer.
TREND FORECAST: Understanding the socioeconomic and geopolitical crisis shaping the world, central banks continue to load up on gold. The World Gold Council reported that nations have expanded their bullion reserves by 337 tons from July to September. Again, as we forecast, should the Israel War and Ukraine wars continue to escalate – which we forecast they will – gold prices will spike to the $3,000 per ounce range.
BITCOIN: The world’s most popular crypto was edging lower today and was trading down $127.20, or 0.37 percent, to $34,620.90 as of 5 p.m. ET.
There continues to be a feeling in the crypto market that the U.S. Securities and Exchange Commission will approve a bitcoin ETF… likely in the early months of 2024.
Gautam Chhugani, a Bernstein analyst, said an approval would send the crypto skyrocketing to $150,000 by 2025, more than double bitcoin’s high of more than $67,000 set in 2021.
Again, we have been forecasting for a year that considering the trading range of bitcoin, it would continue to move higher.