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U.S. investors are paring back investments in hedges—instruments that pay a return when equity markets fall—according to the Financial Times, and taking profits in derivatives that would have protected them from a market slump.
This signals investors’ belief that the worst of the markets’ recent tumble is over, the FT said.
Cboe’s Skew Index, which monitors the options market and serves as a measure of investors’ interest in protecting against a market slide, fell last week to its lowest level in 11 months.
Why are these investors shrugging off a looming energy crisis, persistent inflation, a debt ceiling crisis on the calendar for December, and a recent market sell-off?
“There are concerns out there right now but all of them are low-probability events” in the view of high-volume hedgers, Barclays strategist Maneesh Despande told the FT.
Still, the Skew Index remains above its long-term average, indicating investors are not ready to relax quite yet, the FT pointed out.
Cboe’s Vix Index, which measures investors’ fears of market volatility, has risen back above 20, its historic average.
Recent slides in market prices have not spooked investors but have given them space to rethink their portfolios as the bull market appears to be slowing, analysts told the FT.
Despite the economy’s persistent ailments, analysts are expecting strong fourth-quarter earnings.
Last week, strategists at JP Morgan Chase advised clients to “buy the dip” in stock prices.
TREND FORECAST: Stock prices may continue to float above economic reality for a little while longer, buoyed by the Fed’s low interest rates and handouts of cheap money for as long as they last.
However, we maintain our forecast for a major market correction when artificial props are no longer in place to support unrealistic equity prices.
As we have reported, while the Fed Banksters were bullshitting that inflation was temporary, we had forecast that it was not. And today, the International Mafia Fund—or the International Monetary Fund as they promote themselves—parroted our Trend Forecasts.
We had forecast that with inflation rising (minus a wild card such as wars, market crash, natural disaster etc.), the Fed will raise interest rates gradually, 25 basis points at a time. And as rates rise, equities and the economy will decline.
Today, the IMF said it concurs with our forecast that inflation will eventually ease, but in the meantime due to the “high uncertainty” central banksters should be prepared to stop the cheap money flows and consider raising interest rates.
It should be noted that the U.S. Fed has not raised rates since 2018 and was pressured to lower them by President Donald Trump as equity markets were swooning and the economic growth was slowing.
However, with inflation now running at a 30-year high in the U.S., the IMF said, “In settings where inflation is rising amid still-subdued employment rates (as we detailed in this Trends Journal) and risks of expectations de-anchoring are becoming concrete, monetary policy may need to be tightened to get ahead of price pressures, even if that delays the employment recovery.”
Again, the higher and faster interest rates rise, the deeper and quicker equities and the economy will fall. As the current events forming future trends are unfolding, again, minus a wild card, we forecast the Fed will raise rates now and begin to sharply lower them in the lead up to the 2024 U.S. Presidential Reality Show®… which will in turn reinvigorate the “Biden Bounce” which has now flattened.
What’s Next, Where Will the Market Go?
You know the motto of the Trends Journal: Think for Yourself.
The game is rigged. As Gregory Mannarino writes in his article this week, Distortions In the Markets Will Become Even More Extreme:
“The mechanism of suppressed rates and vast asset purchases by central banks have stripped out ANY AND ALL remnants of a free market and are responsible for massive distortions across the entire spectrum of asset classes.
“What we can expect moving forward is simple- a continued expansion of global debt on an unprecedented scale, and this expansion will continue to distort the markets.
So, what does this mean?”
Check the “TRENDS IN THE MARKETS” section to see what Mr. Mannarino forecasts.
GOLD/SILVER: Last week is this week. Gold and silver prices are still trading at the same range. Gold moved up just $2.46 per ounce today, closing at $1,760 per ounce on expectations of higher inflation and a weakening dollar. Silver remained slumped, falling 29 cents to close at $22.57 per ounce.
We maintain our forecast that when the Fed raises interest rates, despite the dollar getting strong, inflation will still persist, which will in turn drive up gold and silver prices.
Moreover, when the flow of cheap money dries up, equities will dive and the economy will sink into deep recession. Thus, there will be strong demand for safe-haven gold and silver assets which will spike prices back to the yearly highs… and higher.
OIL: Sharply rising energy prices will negatively impact U.S. economic growth. Oil nears its three-year high on fears of an energy crunch, with Brent crude, now trading at $83.42 per barrel, spiking some 60 percent this year. West Texas Intermediate was flat today, closing at $80.52 per barrel.
As wages slump in comparison to spiking inflation, for the peasants of Slavelandia, prices at the gas pump have jumped $1 dollar per gallon since last year.
As winter sets in, they are paying 68 percent more for heating oil… while coal burning plants are paying record high prices. According to the U.S. Labor Department, electricity prices had their biggest spike since 2014, rising 5.2 percent in August.
Again, the higher prices are being driven by rising demand and tighter supplies. And according to Moody’s Analytics, they forecast oil prices will trade between $80 to $90 a barrel by early 2022. By 2025, JPMorganChase projects Brent Crude to hit nearly $200 per barrel. They now estimate that rising oil prices will push up inflation at least 0.4 percent in the coming months.
With American consumers now spending some seven percent of their income on energy, this will sap consumption from other sectors.
BITCOIN: The bitcoin bounce flattened a bit today after hitting around $58,000 per coin yesterday, it was down nearly 4 percent, trading in the $55,000 range as we go to press… but still up some $4,000 from last week. Some of the downward pressure came as JPMorgan Chase Bankster, Jamie Dimon told CNBC Pro yesterday that “I personally think that bitcoin is worthless.”
TREND FORECAST: We maintain our forecast for Bitcoin to dive deeply if it goes below $25,500 per coin and rise sharply if it breaks strongly above $50K per coin and steadily maintains the above mid-$50K range… which it is now flirting with.
We also maintain our forecast that a major factor in forecasting the future price of bitcoin and other crypto currencies is dependent on government regulations. Thus, the more regulation, the lower the value of the coins, the less regulation, the higher the prices rise, especially as more small time traders keep jumping into the crypto market.
(For more on bitcoin and other cryptocurrencies, please see our “TRENDS IN CRYPTOS” section.)