Joel Bowman, reckoning today from Buenos Aires, Argentina...
If you blinked, you might have missed it.
The S&P 500 dipped into bear market territory yesterday (defined as a 20% drawdown from its previous – Jan. 3 – high), before rallying into the close in a cheerful/hopeful/delusional reversal.
Now, either yesterday’s hour-long bear market will go down as the shortest bear market in history... or this ursine beast is still hungry!
The index ended the day an unconvincing 0.01% in the green. It’s off 18% for the year.
And yet, might we still have further to fall? Hmm... here’s CNN Business:
[Friday’s] move comes on the heels of seven straight weekly losses for the index and follows months of precipitous market drops. The S&P 500 has long been considered the most accurate measure of the nation's stock performance.
In the three years prior to this near-bear market, the index grew by 90%.
The index's slide highlights investors' increasingly dark economic outlook — one fueled by slowing economic and earnings growth, rising inflation and the Federal Reserve's subsequent monetary tightening.
The Nasdaq, already well into bear market territory, is down ~30% from its November high. That’s rough sailing, to be sure... but nothing compared to the 78% top-to-bottom free fall witnessed in the dot.com bubble, Version 1.0.
And here’s a curious phenomenon... despite an inflation rate not seen since Kim Carnes “Bette Davis Eyes” first hit airwaves (1981), the greenback is rallying against a fistful of foreign fiat. Already approaching euro parity, there’s even talk about the dollar potentially overtaking the pound sterling.
Here’s CNBC on the potentially “apocalyptic” situation across the pond:
LONDON — Traders are increasingly taking short positions against the British pound as the U.K.’s cost of living crisis begins to bite.
Inflation came in at an annual 9% in April, a 40-year high, as food and energy prices continued to spiral after the U.K. energy regulator increased the household energy price cap by 54% at the start of the month.
Bank of England Governor Andrew Bailey has warned of an “apocalyptic” outlook for consumers as a recent survey also showed that a quarter of Britons have resorted to skipping meals.
Sterling has fallen almost 8% against the dollar year-to-date and hovered just below $1.25 as of Friday morning, slightly above a recent two-year low.
What does all this mean for your dollar-denominated investments? For stocks? Bonds? Gold? For that all-of-a-sudden-very-attractive vacation to ol’ London Town?
Bonner Private Research’s macro analyst, Dan Denning, has been toiling away, up on the high plains of Laramie, Wyoming, putting together the much anticipated Dollar Report. Here he is with an update, from yesterday’s note to BPR subscribers...
The Dollar Report is nearing conclusion! One area I worked on this week is why the dollar gets stronger in a debt deflation. Or, put another way, why is the dollar getting stronger now (relative to other fiat currencies) when inflation is at 8.5%, official interest rates are far too low, and the US government has $30 trillion in debt.
One explanation is the image below. I first encountered it in 2012, while researching the work of John Exter. Exter was the consummate banking insider. He was the Vice President for the New York Fed in 1954, in charge of international banking and precious metals.
His inverted pyramid is a visual representation of how money moves between asset classes in a liquidity crisis. The top and largest parts of the pyramid are the biggest markets, nominally. They are also the furthest away from ‘real’ value. Interest rate derivatives, for example, would be near the top. The point?
When liquidity disappears from the financial system, it evaporates at the top and moves ‘down’ the pyramid to more liquid assets. Assets deriving their value from debt and speculation go up in smoke first. Money crowds into ‘safe spaces’ as the contraction/deflation proceeds.
You can see that government bonds, Treasury bills, and Federal Reserve notes (cash) are near the bottom of the pyramid. They are liquid assets. They are cash, or near cash. Gold is at the bottom.
The dollar’s relative strength may be because markets expect US interest rates to head higher this year (compared to the Eurozone, for example). That makes the dollar relatively stronger than other forms of paper money. But as I’ve said before, the headlines about dollar strength don’t tell the full story.
The dollar appears strongest just before it falls against the ultimate form of money, the real asset at the bottom of Exter’s pyramid. Keep an eye on gold (and silver) for more evidence that liquidity is moving to what I call objects of permanent value. More on this in The Dollar Report!
And there you have it. If you’re at all interested in dollars... earning, investing, preserving them... you’ll want to make sure you get a hold of Dan’s comprehensive report, which he’ll soon add to the already stacked resource shelf at our Bonner Private Research Substack page, available to all paying subscribers.
Not a member yet? No worries. You can join us today, here...
And now for Bill Bonner’s missives from the past week...
That’s all from us for today. Tune in tomorrow for your regular Sunday Sesh, when we’ll open the floor to you, our fellow patrons. Earlier this week, we asked you to nominate your top picks for the Incompetents Hall of Fame. There being plenty of ineptitude to go around, nominations came in thick and fast, with a few international mentions - paging Jacinda Ardern and Justin Trudeau - garnering some well-earned votes.
Feel free to share your nomination for chief incompetent in the comments section below or by writing us directly at bonnerprivateresearch@gmail.com Also, do include any evidence - quotations, video, news clippings - to help make your case.
Here’s one a reader kindly shared earlier. Lordy, when it comes to gaffes, GWB is the gift that just keeps giving...
Until tomorrow...
Cheers,
Joel Bowman
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Very interesting, gold is dropping at the same time as the markets, at the same time as fiat currencies, but not yet real estate, hmmmmm. So, what do we actually need, shelter, food, water, air, anything else? If things become more difficult can't you imagine four people carpooling to the grocery to stock up? I live in the country so there is a bias, what about city dwellers, how do they intend to cope? How do my less fortunate fellow travelers adjust to hardships. When hurricane Ivan devastated Grenada the poor did pretty okay, not to make light but when you got nothing you got nothing to lose. That's a resilient bunch and the well off and spoiled suffered mental breakdowns and PTSD. Somewhere in there is a lesson.
How about Jimmy Carter II (Joe Biden), as the most incompetent U.S. President ever? Unlike Ross Perot, whose success in business was because he believed in “surrounding himself with eagles”, as I believe you also do. Biden and Carter never learned that particular leadership trait. They picked many unqualified support personnel instead and it really shows. Reagan had that trait and it helped him immensely in his leadership role. From CG in Dunwoody, GA,
Very interesting, gold is dropping at the same time as the markets, at the same time as fiat currencies, but not yet real estate, hmmmmm. So, what do we actually need, shelter, food, water, air, anything else? If things become more difficult can't you imagine four people carpooling to the grocery to stock up? I live in the country so there is a bias, what about city dwellers, how do they intend to cope? How do my less fortunate fellow travelers adjust to hardships. When hurricane Ivan devastated Grenada the poor did pretty okay, not to make light but when you got nothing you got nothing to lose. That's a resilient bunch and the well off and spoiled suffered mental breakdowns and PTSD. Somewhere in there is a lesson.
How about Jimmy Carter II (Joe Biden), as the most incompetent U.S. President ever? Unlike Ross Perot, whose success in business was because he believed in “surrounding himself with eagles”, as I believe you also do. Biden and Carter never learned that particular leadership trait. They picked many unqualified support personnel instead and it really shows. Reagan had that trait and it helped him immensely in his leadership role. From CG in Dunwoody, GA,