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OBLIVIOUS TO ECONOMY’S WOES, S&P SETS NEW RECORD
On Friday, 10 December, the Standard & Poor’s 500 stock index closed its best week since 5 February, despite inflation running at a 40-year high of 6.8 percent, outpacing wage gains.
Despite the ongoing COVID War that has been raging for nearly two years, and has destroyed the lives and livelihoods of hundreds of millions across the planet, the S&P 500 rose 25 percent this year.
Part of the push-up is with all the cheap money flowing, stock buybacks, expected to reach $236 billion in the fourth quarter, will hit a record level this year. Indeed, with a 5 percent inflation rate in October from a year earlier (according to the Federal Reserve Bank’s gauge), real interest rates are not near zero, they are in negative territory. Thus, with inflation rising, it reduces the value of future repayments of money that was borrowed.
Fed Up with Fed Crap?
The central bank first claimed they underestimated the length and strength of inflation, calling it “temporary,” then “transitory,” then declaring in Congressional testimony in late November that now “is probably a good time to retire” those words, which we noted in “The Powell Push: For Better or Worse” (7 Dec 2021).
In November, the Fed said it would close its bond-buying program by mid-2022; now it seems ready not only to cut that timeline in half but also to raise interest rates more aggressively than it had indicated previously.
The Street expects two, and perhaps three, quarter-percentage-point rate hikes next year. If so, that will push down equities, the economy and real estate sales.
In 2018, the Fed said it would raise interest rates in 2019, only to scrap that plan when the economy and equity markets weakened and were pressured to lower them by then President Donald Trump.
At the end of 2019, Fed chair Jerome Powell said that rates would remain untouched for the foreseeable future. In a quick about face, to fight the COVID War, the Fed slashed its key interest rate to a record low 0.25 percent.
Since then, the Fed also piled $4 trillion in bond purchases onto its balance sheet.
As inflation climbed, the Fed said it would wait out inflation, which it called “temporary,” and hold rates firm until the labor market reached full employment, a goal later revised to “maximum” employment as the labor market faltered.
Now, with the job market still in flux (see related stories in this issue), the Fed will shift back to a focus on raising rates to tame inflation.
The Markets
The S&P added 1 percent Friday and was up 3.8 percent for the week.
The Dow Jones Industrial Average added 0.6 percent over the five-day trading stretch; the NASDAQ rose 0.7 percent.
However, travel and leisure stocks which should be tanking considering the new rounds of travel restrictions, were off slightly. Expedia Group’s shares shedding 1.7 percent and Southwest Airlines’ giving up 3.89 percent over fears that the Omicron variant might hobble global travel.
Last week, the gambling gang, i.e. “investors,” were heartened by indications that the Omicron variant may be less harmful than first feared and shrugged off the possibility that the U.S. Federal Reserve may raise interest rates sooner than next summer as previously expected.
TREND FORECAST: It’s a sick joke. For well over a decade, the Fed’s said they had a 2 percent inflation rate window, and that when inflation rose above that, so too would interest rates. Adding more bullshit to their narrative, as we have solidly detailed, the Bankster Bandits kept saying inflation was “temporary,” then it became “transitory”… while hitting nearly 40 year highs.
Therefore, they either knew inflation was sharply rising and lied about it so they could keep interest rates low and continue to artificially prop up equity markets and the economy… or they were too stupid to face the facts.
As we analyze the current events forming future trends, they knew the inflation facts and lied about inflation not being real to keep their Ponzi scheme going.
The U.S. Consumer Price Index grew by 6.8 percent last month, year on year, faster than at any time since June 1982. And according to Shadowstats.com the real inflation rate is at 15 percent.
In the meantime, even considering the “official” 6.8 percent rate, over the past year, the wages of the U.S. plantation workers of Slavelandia hourly pay increased just 4.8 percent. Today, the U.S. Labor Department reported that wholesale prices rose 9.6 percent in November.
And while the supply chain disruptions drove up prices over the past year-and-a-half, we forecast they will decelerate next year and prices will only moderately increase.
Today, the Fed began its two-day meeting, and the word on The Street is they will not raise interest rates until mid-2022. We forecast they will increase interest rates at the beginning of next year, and they will quickly ramp down their bond-buying scheme by $30 billion per month.
Omicron Fear
As of 11 December, no U.S. deaths have been attributed to the Omicron variant, although Britain recorded its first on 13 December. Yet, the fear of the virus has hit many commodities as more restrictions are being mandated, which in turn will slowdown economic growth.
Crude oil prices have dropped by more than 10 percent, and while natural gas prices have fallen sharply from their October high, they are still up 50 percent year-to-date.
The continent-wide Europe STOXX 600 closed last week down 1.43 percent, Japan’s benchmark Nikkei index slipped 1 percent, and the Hong Kong Hang Seng index gave up 1.07 percent.
China’s Shanghai Index edged down 0.18 percent and the Shenzhen Index fell 0.24 percent.
This week
With nations, states and cities imposing more COVID War 2.0 mandates, and growing concerns that the Fed will aggressively wind down their bond-buying scheme and raise interest to fight inflation, yesterday, the S&P 500 fell nearly 1 percent, the Dow was down 320 points, and the Nasdaq declined 1.4 percent.
With more COVID worries coming daily, today, following the producer price index for final demand products increasing 9.6 percent over the past 12 months—and growing worries for more aggressive Fed strategies to combat inflation—the S&P 500 fell 0.7 percent, the Nasdaq Composite was down 1.14 percent and The Dow Jones Industrial Average fell 106 points.
Overseas, Asian and European markets closed lower as investors worried about the Omicron spreading and central banks raising rates.
GOLD/SILVER: Despite U.S. producer prices increasing more than expected in November—which usually pushes up precious metal prices since they are a hedge against inflation—with fears that the Fed will rapidly raise interest rates, Gold fell nearly 1 percent and silver slumped 1.72 percent, closing at $1,771 per ounce and $21.95 per ounce respectively.
As interest rates rise and the dollar value appreciates, both precious metal prices will decline. Interest rate hikes push-up government bond yields which raises the opportunity cost of holding non-yielding gold and silver.
TREND FORECAST: As we note in this and previous Trends Journals, the economy cannot run without cheap money. Thus, as a result of the cheap money drying up when interest rates go up, the economy and equity markets will sharply decline… which will in turn strongly drive up precious metals and cryptocurrency prices as investors seek safe haven assets.
Also, minus a wild card event, such as the Fed rushing to push interest rates much higher, we forecast that gold will stay above $1,700 per ounce and silver’s bottom will be in the $18 per ounce range.
BITCOIN: With fears of the OMICRON variant, Bitcoin got hit hard on 4 December, falling to $42,300. The news on The Street and from the business media is that Bitcoin will continue to decline. However, as we go to press it is still trading in the $47,000 range which is still very strong. We maintain our forecast that bitcoin is not in a dive position and that when it solidly breaks above the $55K range per coin, it will hit new highs.
TREND FORECAST: We maintain our GSB—Gold, Silver, Bitcoin—forecast that all three will maintain and then pass their current and previous highs when, after the U.S. Fed rate hits 1.5 percent, equity markets sharply fall and the economies sink into Dragflation: Declining Gross Domestic Product and rising inflation.
We also maintain that a major factor in forecasting the future price of bitcoin and other crypto currencies is dependent upon government regulations. However, that threat in the U.S. and Europe will lessen as more banks, businesses and investment funds are going crypto, thus, the upward crypto trends, especially bitcoin, will continue to gain momentum.
(For more on bitcoin and other cryptocurrencies, please see our “TRENDS IN CRYPTOS” section.)
OIL: Spreading yet more fear, this is CNBC’s headline article today: Omicron is spreading faster than any other Covid variant, WHO warns. With international travel tanking as new COVID restrictions are being enforced, office occupancy rate of only 40 percent in the U.S., and many nations imposing restrictive mandates on both the vaxxed—and more so on the un-vaxxed—oil prices are down sharply from their late October highs.
Brent Crude, which hit the $87 per barrel range back in October, was down 1.45 percent today, closing at $73.32 per barrel. West Texas Intermediate fell 1.30 percent, closing at $70.30 per barrel… each down about one dollar from last week.
TREND FORECAST: As we have noted, oil production will continue to moderate and while OPEC+ plans to gradually increase supply every month by 400,000 barrels per day (bpd) after sharply cutting back output last year, should the COVID War 2.0 continue to ramp-up and economies decline, they will limit output to keep prices in their current range.