“I believe that, young or old, we have as much to look forward to with confidence and hope as we have to look back on with pride.”
– Queen Elizabeth II
The view from the U.S. MACRO sceneIt would not be complete without mentioning the Eurozone. Soon after the Energy Crisis, economic warning lights began turning yellow. The situation has worsened to the point that it is flashing RED. Market analysts will remind investors, however, that a US recession was never caused by a recession within the EU. This is not a cause for concern. That thought doesn’t negate the poor state of affairs in the US economic sector.
The Federal Reserve faces many problems, while the European Central Bank is facing a new set of challenges. Recent commentary from corporate earnings indicates that the US has seen inflation stabilize at best. There is no sign of an economic slowdown. Despite this, there are still supply shocks in the eurozone economy. Inflation pressures don’t seem to be slowing down. Nearly half of EU countries experience double-digit inflation. Inflation rose rapidly due to a global energy crisis.
Eurozone in Crisis Mode
The ECB halted its bond-buying program and lifted interest rates by 50 basis points last month—its first rate hike in over a decade. Although the ECB is expected raise rates by a similar amount in September it is a sign that the European economy is at the edge of a recession. The euro has fallen by 12% to its lowest level since 2002, breaking parity to the dollar.
On one hand, the weaker currency makes its goods more competitive in the global market and will likely boost last year’s record ~$400 billion of exports to the US. This will also increase the cost of import goods, which will continue pushing inflation higher. Just as important, a weaker euro compounds the upward pressure on key imports such as oil—which is priced in dollars. The ECB has noticed this and has raised interest rates to reflect a worsening outlook for growth.
Both the US as Europe have high energy costs. This is due to policy errors made in the US and Europe that have now led to panic within the EU. Power prices are now 13x what they were in the past. While not breaking new records, US natural gasoline prices have reached a new high of $10/Mcf in the past 14 years. The benchmark EU gas prices are now at $85/Mcf. This is an astonishingly high price for EU gas, as the market continues to send price signals regarding all available LNG cargoes. The European household energy bills increased 35% in July, compared to the 15% in the US. These bills are likely to be higher because of recent energy spikes and proposed usage levies. For example, Germany’s new levy allows energy importers, who are working to replace the Russian supply, to pass along some of the higher costs. The per-kilowatt hour natural gas usage fee will cost households 500 more annually on average.
Catastrophic energy costs
European consumers are still planning for the worst, even as their bills rise. Anecdotal evidence suggests Europeans have begun to stockpile wood (imagine doing that in the summer heat), as well as bought stoves in order to stay warm in winter. Even beyond the consumer impact, Europe’s energy-sensitive industries are struggling as well. Aluminum and zinc production has fallen by around 50% in the past year. While consumers have been the main focus of the research (both sentiment and spending ability), it is important that we consider the wider economic and industrial-level impacts. The EU is Discussing the possibility of capping energy pricesThis amounts to subsidies that someone must pay for via increased taxes, etc. Many analysts predict that this situation will last for more than one winter.
Last month, Euro Zone PMI Manufacturing Index entered contract territory for the first-time since June ‘20 and the preliminary August report showed further deterioration. For as much concern that has been voiced over the US economy, the situation is direr in Europe. recently we have seen the Eurozone release economic sentiment, PMI manufacturing, and the all-important inflation report. All painted a concerning picture.
None of this is a huge surprise, the die was cast when the Energy crisis arrived. Since late last year, the message has been consistent. Energy costs show up in EVERY facet of the economy. There is no way inflation is going to roll over and drop rapidly with energy costs at high levels. With energy prices yet to peak, Europe’Inflation readings will likely set a new multidecade record. They will also have an impact upon consumer sentiments and business outlooks. Forecasts Inflation in the UK is currently at 22%. The reason is high energy costs.
No matter how investors believe we are in recession, negative data for the first-half GDP and subsequent data reports do not indicate strength. Two global dominoes are likely to fall or, at a minimum, be so weak they will have no impact on global economic growth. This situation will continue in stock markets in both the US and EU.
My opinion is that there are many methods to make money. “V”Low probability of a shaped recovery after this bear market. This is now different. It is unlikely it will happen. As equities seek to rebuild themselves, we can expect back-and forth trading. The most recent bear markets, 2018 and 2020, saw a sharp recovery of the lows. However inflation was low back then and the Fed could ease policy – we don’t have that luxury right away. If it isn’t already, there is a low chance that we will ever have one.
Global Stock Markets
The end of August saw a wild ride in U.S. equity as measured by S&P 500 ETFs (SPY). SPY was at its midmonth high, with a 4.3% month-to-date gain. However, this was erased as the month ended with a decrease of 4.4%.
Similar results can also be seen in the country ETFs of each major global economy. These countries saw an average 3.1% rise at their monthly highs, but ended the month in decline of 3.5%. Overall, developed markets have performed worse than emerging markets with an average decline in 4.8% and 1.2%.
There are only two ETFs—Brazil (EWZ) and India (INDA)—that were positive for the month. China (MCHI), however was not affected. At the opposite end of the spectrum, Sweden’s (EWD) performance has been nearing a 11% decline. Many other European countries are following suit with worsening results. Many stock markets have fallen below 50-Day moving means technical support, many of which fell in August. Only four countries are currently above their 52-week pre-COVID 52week highs: Taiwan, India and the United States (EWC). This group must fall to return to their previous highs.
The Week On Wall Street
All Indices enter the shortened week following a three-week losing streak. After a six-day losing streak, the NASDAQ 2000 and Russell 2000 entered today’s session with a six day loss. Post-labor Day trading was similar to pre-labor day trading, in that rallies don’t have staying power. On Tuesday, another session of up-and-down trading took place. The S&P closed at 3910.1%. All indices lost ground. The NASDAQ & Russell 2000 suffered seven consecutive losses.
Wednesday saw a shift in sentiment. All major indexes rallied, ending losing streaks. Ten of the 11 sectors took part in the rally that saw strength all around. Crude oil prices fell to seven month lows and the Energy sector was the only one to lose the day.
The rally continued as the seven-day losing streak turned into a three–day winning streak, which lifted all major indexes to post gains for this week.
The Atlanta Fed GDP NowReport shows Q3 GDP at 1.4%, down from September 1st’s view of 2.6%. I am confident that we will see many improvements before the quarter ends. My belief is that we will continue to see slow to non-existent growth, with negative growth in the first half of the year, and no changes to our fundamental economic backdrop.
The Services PMIAccording to a report, business activity was very high The fastest rate of contracting since May 2020Despite a steady fall of new order.
In August, the index was at 43.7. This is lower than 47.3 in July and lower that the flash estimate of 441.
In the meantime, ISM-NMI services indexThe ISM adjusted ISM–NMI reached a peak 4 months ago at 56.9, an increase of 56.7 from July. The ISM adjusted ISM–NMI rose to a 3 month high of 54.7, from 54.3 in July. This is also higher than the June 2-year low of 53.7. Today’s gains include increases for the Chicago PMI and Philly Feds, as well as gains for the Empire State and Richmond Feds. This is a 9-month reduction in producer confidence from the strong peak of November 2021.
The Global Scene
As expected, the European Central Bank raised its key interest rate by 75 basis points Wednesday. It expects more rate hikes as it attempts to keep inflation under control during a possible recession.
“This major step frontloads the transition from the prevailing highly accommodative level of policy rates towards levels that will ensure the timely return of inflation to the ECB’s 2% medium-term target.”
The ECB raised its inflation forecasts in this year. The average inflation rate is 6.8% for this calendar year, which is more than the 5.1% forecasted for March. However, it is projected to be 3.5% in 2023, and 2.1% by 2024. The ECB has also reduced its growth forecasts for 2023, which were 2.1% to 0.9%, as well as 2024’s forecasts, which were 2.1% to 1.9%. The outlook for growth is positive, in particular.
The J.P.Morgan Global Composite Output IndexAugust’s output dropped to 49.3 compared to 50.8 in July. Both the manufacturing sector and the service sector saw a decrease in output.This is the first instance of both categories experiencing concurrent downturns since June 2020.
Final Eurozone Composite Output Index48.9 (July: 49.9) A 18-month low.
Final Eurozone Services Business Activity Index at 49.5 (July 51.2).A 17-month low.
August: Countries ranked using Composite MPI Output Indicator
Ireland 51.0 Low for 18 Months
Spain 50.5 7-month low
France 50.4 (flash49.8) Low for 17 months
Italy 49.6 2-month high
Germany 46.9 27-month low
The UK Services PMI Business Activity IndexThe index was above the 50.0 mark in August. August saw service sector growth slow down as the index fell to 50.9 from 52.6.
The data from China and their Asian counterparts show a completely different picture.
Chinese inflation dataAugust saw a collapse on producer prices. After a July decline so large, headline CPI fell 2%+ and core CPI (ex Food and Energy), was up 0.7% annually. While the rest of us struggle with inflation pressure, China is not.
Credit growth is moderate at around 7 percent annually; headline growth exceeds estimates. After seasonal adjustment, the best indicator to measure mortgage lending was capable of accelerating to the fastest rate of growth within six months.
The seasonally adjusted headline Caixin Business Activity IndexThe August reading was 55.0 compared to 55.5 in the July reading. This indicates that it was slightly softer but not surprising. The activity in the service sector is still high.Notably, the pace at which expansion occurred was the fastest since May 20,21. As the effects of the pandemic continued to recede, business activity increased in tandem with increased customer demand.
The au Jibun Bank Japan Services PMIAugust’s figure was 49.5, which is a decrease from 50.3 in July. It also signals the first drop in Japanese service industry activity since March. The decline rate was slower than that at the beginning 2022.
The headlineASEAN Manufacturing PMIIt was 52.2 in July, but 52.3 in August. 11 months of expansionThe latest reading also showed a significant improvement in ASEAN’s health sector manufacturing.
Congress will resume session in May with defense authorization and Taiwan strategy. permitting reform, government funding, FDA fee renewal and a year-end extension bill for tax purposes leading up to the fall/winter calendar
You should pay attention to the following: permitting reformThat was Senator Manchin’s agreement with Chuck Schumer (Senate majority leader). This add-on enabled Mr. Manchin to pass the entire Tax and Spending legislation. This legislation is Now, the matter is under scrutiny and there are many questions. It becomes law. This reform was included in the agreement to streamline the permitting process. A process that is archaic and out of touch.
It is highly probable that it will stay that way.
Newly elected U.K. Prime Minister Liz Truss’s team announced several InitiativesTo reduce stress due to rising energy prices. It is more efficient to take a longer-term approach.She announced that the ban was lifted on fracking and that she plans approve more drilling for oil.. The new PM also announced a price ceiling on energy prices that consumers will see in the next two-years. This was a shorter-term-based decision.
The plan would reduce household bills and pay the difference to utilities (subsidies). As part of the regular reset, businesses are also offered support. Gas and electricity rates are rising as part of this program. The UK’s power price swings are already affecting UK households.
Subsidies come with two problems. Subsidies are subject to two problems. First, eventually, someone will pay the subsidies in taxes, etc. There is no free lunch. For additional debt, the U.K. government will be required to pay 10s of Billion Pounds. The Brits will have to pay the cost of subventioning their failed projects “green initiative”It will also cost more. They are now in an unenviable situation. Subsidizing their entire energy use.
Second, consumers shouldn’t be kept in the dark about reality. This is a temporary solution. Consumers feel better when they can accept the reality of the situation. “comfortable “Their subsidized bills make them more likely to use energy, creating more demand. But policymakers are in a difficult spot. Either they alleviate the cost pressure or deal with the growing civil unrest caused by these failed policies. I warned that the “pushback”This absurd agenda will be stopped eventually.This day is coming!.
Recent optimism about the EU’s energy crisis has been reflected in positive comments, given the progress made in reducing building inventories and industrial demand. Many people are now saying that there are good reasons to be optimistic about the winter’s outlook. However, inventory problems could be exacerbated by a cold winter. A decline in one-sided markets is not always indicative of large gains. I don’t think that watching Nat Gas futures is a good indicator of whether Europe has survived the worst. This issue is far from over and it’s very unlikely that this will be the last winter with challenges.
Food for Thought
We are glad that you are here “Battery World”
The U.S. is on the same path that the Eurozone. While the outcomes may not be as dire as the Eurozone’s, it will still result in a failed plan that will stifle the U.S. economy. It also abandons energy independence.
The transition to “green energy”Continues with some States and approximately 50 cities Natural Gas BanAs an energy source for building construction. The US has more 100 years of proven Nat Gas reserves. This helps to keep America strong. “energy independent”. It is also One of the most affordableOne-fourth the price of electricity. China is the only alternative source of energy that can be used. “Green New Deal”It would make America more dependent on other nations.
Solar panels are dependent upon communist China as well as being dependent upon them. They consume more energy and use more fossil fuel-burning equipment to mine, manufacture, transport, and transport them than they save.. They also contain Toxic chemicalsThese are used in manufacturing.
Solar and Nat Gas cost approximately $0.05-$0.06/KWh. But it is the solar subsidies that lower those costs. These subsidies are paid for with taxes and other fees. We can’t ignore the fact that both are reliable. “sketchy” at best.
Finally, today’s energy demands exceed supply. This is causing rolling blackouts and other restrictions. Ironically, the commentary is focusing on the future consumers and asking for a step back into the past. It’s 2022. It’s 2022. Everyone should be asking this question “new era”They find themselves in. This leads to consumers pushing back.
If infrastructure isn’t constructed to meet demand, then the current path of supply and demand will be reversed. Everyone can now do the math and predict the outcome. Let’s not forget that The current permitting process for these projects is taking time.Even if it is simplified, “Battery World”They will only get a fraction of what was expected. This is because the green deal has not been considered. Each day brings more economic implications, which will ripple across the financial markets. As this happens, consumers will feel more pain. It’s not just financial pain.
The EU is about to propose a “mandatory target”Reduce peak electricity consumption. California, the U.S. posterchild of what is wrong is here “green”One can only guess at what mandates might be passed during the current administration. “transition” occurs.
2023’s energy independence will be completely dependent on fossil fuels. “green”It doesn’t matter if the movement is ready to embrace it. Failure to do so could have serious implications for the global economy and markets. Prime Minister Truss made the first step to remove the ban on fracking. This could lead to the gradual dismantling of the failed Green Energy Transition. I’m not suggesting that. “green”It is obvious, however, that fossil fuels must be part of the transition. It was wrong from the start and many policymakers still believe it. You don’t get energy independence by burning fossil fuels or going to a new source.
The War on Fossil Fuels
The issue of energy policy and how to increase U.S. oil production has been a topic of debate since 2021. Let’s end the endless debate about leasing, permitting, and other nonsense regarding US energy production, and just acknowledge the FACTS.
“President Biden’s Interior Department leased 126,000 acres for drilling in his first 19 months in office. Truman was the last president to lease out fewer acres (in 1945-46), when offshore drilling was just beginning & the government didn’t yet control the deep-water leases.”
The other presidents who are included in that list all have “millions”Many acres are located right next to their names. The Mineral Leasing Act of 2020 requires that offshore oil or gas leases must be made at minimum every quarter. Although the Biden administration is in power for six quarters, auctions have only been conducted once quarter. After rising gasoline prices and increasing pressure to lower them, the Biden administration held an auction in June.
Only one solution to the current energy crisis is possible. Increase production and distribution. We’ve already seen this. “initial”The current energy policy will have serious consequences. This will continue driving up inflation and could lead energy shortages that could impact economic growth.
If you don’t believe me, just take a look at what is going on in the Eurozone right this moment. Those who control and possess. “ENERGY Resources”All others will follow Willie’s example and all other people will be left with their economic futures.
This is FACT, not OPINION. History has shown it. U.S Energy policy plans continue with theOil from the Strategic Petroleum Reserve is released. This is not a long-term strategy. Policy mistakes will have a significant impact on the near-term direction and performance of global economies and markets.
China is patiently watching this nightmare unfold and should be smiling. While the “greenies”China will not admit to it, but their selfish strategies have given them the keys of the kingdom.
Only 18.1% of weekly replies were received in the most recent update AAII sentiment survey Bullish reports were prevalent. This was the third consecutive drop in bulls, which led to the weakest reading since April. The Bearish sentiment has risen higher, rising to above 50% last week and then climbing further to 53.3% this week. This is the highest level of bearish sentiment since June 23, and ranks amongst 2.5% of all recorded week.
I would love for this to be a positive outcome from the contrarian perspective. However, in this bearish market, these contrarian signals have not worked. Maybe this report will produce a different result.
The Daily chart for S&P 500 (SPY).
Here we go again. The rally has lifted S&P 500 above resistance, a move that was not in my trendline.
There are many other resistance levels that must be overcome if this rally is to continue.
As you can see, major indices entered this week with losing streaks. Despite all the selling, the S&P 500 didn’t reach oversold levels. Only three sectors – Consumer Staples (Health Care), and Communication Services – were sold out, while Energy was the only one at overbought levels. The WeakStay tuned to the BEAR market trends and stay on top of the Strong get stronger. The message is the same. These are the markets I have focused my attention.
Analysts, investors, as well as pundits, continue to discuss stocks such Microsoft (MSFT), Nvidia, NVDA, Google [GOOGL](GOOGL), Amazon (AMZN), Google(GOOGL), and other well-known names that are great places to be in this area. These are CORE holdings but not the right place for your attention because they all fall within BEAR market trends. If an investor doesn’t have a long-term view, there is no reason not to be interested in any stock that falls within a BEAR market trend.
Ironically, I don’t hear anyone talking about it. “hedges”. Investors were investing in the BULL market constantly. “hedges”They claimed that the rallies were too far-fetched. They were all “playing”For a pullback. They were also playing against primary UP trend. Hedge funds are no longer popular with most people. It’s amazing how the average investor’s mind works. It happens every single time. Emotions can sneak up on people and tell them that the stock markets are too stretched. There is no reason for you to position for further downside. I will be able to tell when the Bull market hedgers start telling you to play the downside.
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Opportunities are available in Energy, Commodities, Utilities, Healthcare, as well as Utilities. Two other opportunities have been identified. Bullish to Bearish reversals. My message to clients and all members in my service has not changed. Stay true to what’s working.
Every week, i return to the “canary message”It was a warning sign for the economy. The main focus was on the Financials, Transports, Semiconductors, Small Caps, and Transports. They were a tool I used in order to help me. “tell”It was not clear in which direction the economy was headed. This strategy will be used in order to create a short-term plan. Unfortunately, all the Canaries are still sick.
OPEC has taken a bold step to keep Oil prices at these levels. An announcement of a small production reduction. However, market participants took it to mean that they were worried about a global economic downturn. Crude oil plunged to a seven-month low, before stabilizing and closing the week at $83
I continue to buy any weakness in the group.
The same analysis can be applied to the dip that was seen this week at the Nat Gas ETFs. Both EnergyPlays remain in BULL Market trends.
This week saw strong (new heights) Uranium, Lithium (URNM), and (SQM). Despite falling Agriculture stocks, they recovered later in the week. Some markets are still performing well. “work”.
The “talk”This week was all about the Financial ETF (XLF) strength. Although this is a positive sign, it is not premature for the group to talk about a BULL trend.
The Healthcare ETF (XLV) continues to hover just below Long Term bullish trendline. This is a group I have been following. “selectively”Recent activity in
Although volatile, the Biotech ETF XBI (XBI) remained above that trendline which has marked this Bearish Bullish reversal. Friday’s close shows that the uptrend has returned 34% to its June origin.
The semiconductors (SOXX), experienced a seven-day losing streak, which sent the whole tech industry lower. There is a lot overhead resistance and the emphasis is on BULLS as support for their case.
ARK Innovation ETF ARKK
Last week, it seemed that the ARKK eTF would need to be challenged to keep Bear to Bull reversal in check. The ETF has rebounded from July’s lows and has maintained the string HIGHER lows that have been in effect since the Bear to Bull rally began.
For those who retained their gains, the reduction has been to +16% “trade”It is still alive.
Despite risk assets and equities making sharp pivots lower this week, cryptos remain largely overlooked. Major cryptos have stabilized. They are mostly coming off high levels, which could simply be mean reversion. September has been a poor month in Bitcoin, Ethereum, and other asset types, which shows that seasonality is not favourable to the asset class.
Although cryptos are slightly higher than last week, any movement remains within a certain range. Bitcoin traded in a narrow range of $17700 to $25,000. It is a narrow spread historically speaking, although a few thousand dollars may seem a lot.
If Bitcoin doesn’t reach a new high/low in this trading range before the end of the month it will be the tightest three months since spring 2019. My new Alert service sent trade signals to members Friday in two trades for Grayscale Ethereum Trust (OTCQXXX:ETHE).
It’s been a tough year, a tough August, and now a volatile start to September with the S&P still down 16% YTD. Stocks are still being affected by many economic hurdles and they will continue to do so. My approach to this year’s backdrop has worked well. I have resisted the temptation not to grab falling knives, and resisted any temptation to simply invest in a stock because it is popular. Instead, I chose to be skeptical and push for the market to prove itself. Despite occasional FOMO, there have been no signs that the market is gaining momentum. The rally at the end of the week is encouraging. But is it the unwinding of the large short position that was built up recently or new buyers entering?
Although there may be turning points (upward or downward) ahead, I do not anticipate the market’s reaction. The Fed could raise its rate by 50 to 75 basis points, the next inflation report might show 6 -7%, and prices of energy may fall. My strategy and positioning, other than tweaking, will continue to follow down.
I’ll let other pundits debate the headlines.
A moment of silence to remember Queen Elizabeth II who died this week.
Queen Elizabeth II was the ruler of 15 prime ministers. During Queen Elizabeth II’s reign, 13 separate bear market events occurred in the US (a 20%+ decline from a high on closing basis with no rallies greater than 20% between) which included one where the S&P 500 plunged over 50% and another where it fell over 48%. In five other bear markets, the S&P 500 lost more than a quarter of its value. Since 1953, when the Queen was coronated, the US has experienced eleven recessions. We could be at edge of a twelveth.
During the Queen’s 70 year reign, the S&P 500 rallied more than 16,000% or more than 7.6% annualized before even taking dividends into account. The annualized rate return on dividends is over 10%. The US Real GDP per person increased by three-and a half times over that period, rising from $17.093 up to $59.288. With all that experience, if the Queen was told that the economy was declining or that stocks were in danger of a bear-market, she would likely have responded calmly with something like ” “been there, done that”.
A truly remarkable woman. May her soul rest in peace.
I’d like to take a few minutes to remind everyone about a very important issue. My marketplace service members and clients receive investment advice. I try to provide investors with a backdrop that will allow them to make their own investment decisions every week. These forums are open to all types of situations and variables. It is hard to know which option is best for each situation.
In different circumstances, I can determine each client’s situation/requirements and discuss issues with them when needed. This is not possible for readers of these articles. This is why I will attempt to form an opinion but not give specific advice. This is a crucial point to remember as you plan your investment strategy.
Thank you to everyone who made this forum a better place.
All the best!