The Trend is your friend.
As we continue to note in this Trends Journal, cities, states, and nations have again locked down in their fight to win the COVID War, but many others are opening up.
Come summertime, get ready for the “Roaring 21s” as the COVID rules get lifted and pent-up populations, especially younger generations, bust loose.
In this Trends Journal, we forecast the coming easing of restrictions, and, now, confirming what we have written, as we go press, this is the Associated Press headline story that’s making the news:
CDC says many Americans can now go outside without a mask
The CDC said that for those fully vaccinated, they no longer have to wear a mask outside, but if they are in a big crowd, they should wear it. They also decreed that even the unvaccinated can go outside without masks .. but, of course, there are restrictions.
The CDC still says vaccinated or not, the masks should stay on indoors in public places such as restaurants, shopping, hair salons, theaters, etc.
So, as we had forecast, there will be an economic bounce-back. And the faster economies grow, the higher equity markets will climb… despite being overvalued and disconnected from Main Street reality, as evidenced by their 2020 boom as the world economy went bust.
Also as we have forecast, the markets will dive as inflation rises and the central banks push interest rates up.
The Street will be waiting to hear what the U.S. Federal Reserve’s interest-rate-setting committee will signal after they meet later this week. The expectation is they will not raise interest rates until 2023, however, as inflation spikes, we forecast interest rates will rise. And when they hit 2 percent, the markets will dive.
Of course, it is the unprecedented flow of cheap money and record-low interest rates that have artificially-juiced equities. Indeed, except for the high-flying tech sector, which highly benefited from the lockdowns and the Big’s “essential” businesses, for the Dow, NASDAQ, and S&P to keep breaking new records while millions of lives and livelihoods have been destroyed, is anathema to basic economic fundamentals.
Street Fear
President Biden’s proposal to hike capital gains taxes to as much as 43.4 percent for those earning at least $1 million a year – more than double the current rate of 20 percent – hit the Dow hard last Thursday, pushing it down 420 points before recovering to close down 321 points.
The new tax haul would fund Biden’s proposed “American Families Plan,” strengthening child care, education, and family-related programs and services.
Following is how The Street responded to the new tax proposal:
The increase would be “a sizeable cost to long-term investors,” Jack Ablin, Crescent Capital Management’s co-founder, said in comments quoted by CNBC. “Expect selling this year if investors sense the proposal has a chance of becoming law next year,” he cautioned.
“Markets are highly concentrated in a small number of growth names,” Mark Yusko, Morgan Creek Capital Management CEO, told CNBC. “Those stocks have driven most of the gains over the past few years and many investors have significant gains at current prices.
“Fear of higher capital gains rates could motivate selling of those names and trigger [a] market correction, so some investors will try and front-run that potential move by selling,” Yusko predicted.
Before the Biden tax news, markets had edged up on positive news of corporate earnings.
After being down most of last week, they bounced back on Friday after the IHS Markit purchasing managers indices for the manufacturing and services sector showed strong growth, home sales were up, and new unemployment claims came in at the lowest number in over a year.
During the week ended 17 April, 547,000 new claims for unemployment compensation were filed, lower than both the previous week’s revised figure of 586,000. Also during the week, 34,000 fewer people continued to receive unemployment from previous claims, although 3.67 million still do.
As we had forecast, hiring will accelerate as lockdown restrictions are eased and more Americans are vaccinated, thus the short-term bounce will return the economy to near pre-pandemic levels through the summer.
Nationally, the unemployment rate remained at 6 percent, less than half the economic shutdown’s peak of 14.7 percent but still almost twice the 50-year low of 3.5 percent just before the COVID War was launched.
As for the Purchasing Managers Index (PMI), both the U.S. service and manufacturing sectors gained strength last month, according to IHS Markit, which manages the indices.
The service sector’s PMI moved from 60.4 in February to 63.1 in March, the highest reading since IHS began the index in 2011, and the manufacturing industry’s PMI has risen from 59.1 in March to 60.6 as of 24 April.
Readings above 50 indicate expansion.
On The Market Front
Today, despite the CDC no-mask decree, the markets were mostly flat with the Dow up just 3.36 points; the NASDAQ down 0.34 percent; and the S&P 500, still hanging near its record level, fell 0.02 percent.
Again, for the most part, the equity markets at the levels of where they are a hoax. As Gregory Mannarino details in his new article, it’s “THE FED’S DANGEROUS GAME.”
Gold/Silver: Both precious metals are still stuck in their week’s long trading range. We remain bullish our forecast for gold to hit $2,100 per ounce this year and silver to break above $50 per ounce. The metals, however, won’t climb that high until inflation reality hits, interest rates rise, and the artificial equity markets that have been pumped up with massive doses of monetary methadone dive.
Bitcoin: Bitcoin is down some 18 percent from its $64,829 peak on 14 April, the same day that Coinbase Global, the world’s biggest cryptocurrency exchange, debuted on the U.S. stock market.
Traders lost $10.1 billion on 18 April as the price continued to drop and bulls bailed out, according to data firm Bybt, with $5 billion worth of sales taking place over Binance, the world’s busiest cryptocurrency exchange, according to the Wall Street Journal.
The Bitcoin rocket lost fuel after the price rose past $60,000 and was trading in a narrow range, according to analyst Michael Oliver at Momentum Structural Analysis, who told the WSJ those factors warned that the price trend could reverse.
“We think Bitcoin’s broken for the time being,” he said.
Despite a slew of negative cryptocurrency news last week and reports today that new regulations in South Korea could shut down all of the nation’s cryptocurrency exchanges, as we go to press, Bitcoin is trading the $55,000 range, and a number of the top cryptos are up over 5 percent.
While cryptocurrencies are being driven up on pure speculation, there is also real concern among crypto speculators that the unprecedented money-pumping schemes by governments and central banks, which have artificially driven up economies and equity markets, have greatly devalued nations’ currencies. Thus, cryptos are the digital age new generation’s safe-haven asset.
As we have noted, if there was not a crypto market – which is only a decade-old invention – tangible safe-haven assets such as gold would be above $3,000 per ounce and silver above $100 per ounce.
We maintain our forecast that should Bitcoin fall below $30,000, the downside risk will push it into its teens, and should it break over $72K per coin, we forecast it will quickly close toward $100K.
Oil: Nothing new on the oil front. Both Crude and West Texas Intermediate are trading in last week’s range. The lockdown of India, which imports 80 percent of its petro needs, has, in part, kept prices from moving higher.
Again, we forecast a sharp rebound in the summer months as the “Roaring 21s” blast off. We continue to emphasize, however, that the spike will moderate as the summer wanes and winter sets in. We also maintain our forecast for a bear equity market by year’s end.