Joel Bowman, checking in today from Houston, Texas...
Rising inflation... Fed rate hikes... the dreaded R-word...
... and a stock market rally?
That was the story this week, dear reader, as investors found reasons they didn’t even know existed to load up on stocks.
Some doubted the Fed’s “aggressive” tightening would continue, given Thursday’s paltry GDP read. Experts had expected a modest increase of 0.3 - 0.4%. Instead, they got a contraction of 0.9%, the second consecutive quarter of negative growth. (Repeat after us: it’s not a recession... it’s not a recession).
Miramar Capital’s Max Wasserman put it thusly to CNBC:
“The attitude is basically that the Fed is saying we’re near the end, and that the GDP number is telling people there is no compelling reason for the Fed to hit us with another 0.75 or 1 percentage point. The Fed may be still raising interest rates a little bit, but we know they’re not going to keep raising at the same level.”
Let’s see. So, now that inflation is running at a 40-year high, and the Fed has strategically positioned its key rate 7.5% BELOW the CPI level (i.e. squarely, decidedly behind the curve)... there’s apparently no reason to suppose that:
Inflation will continue to outpace Mr. Powell & Friends or
The Fed will risk plunging the economy into R-word territory by continuing to hike rates so, ahem, “aggressively?”
Of course, there are those wacky fringe-dwellers who believe that, having logged a couple of consecutive quarters of negative GDP, the economy is already in a recession... but leaving that aside, after the worst start to the year for stocks in almost half a century, most investors are in agreement when they say: Hey, we’ll take what we can get!
And gettin’ they did. The Dow Jones Industrial Average ended higher by nearly 3% for the week, while the S&P 500 and the Nasdaq Composite gained 4.3% and 4.7%, respectively.
For the month, the Dow closed up 6.7%, the S&P 500 ended higher by 9.1% and the Nasdaq rallied a solid 12.4%, though it remains in bear market territory. Those gains mark the strongest month for stocks since 2020.
“Did you know that of the 20 largest one-day gains in the history of the Nasdaq,” Dan Denning observed in Friday’s market note, “16 have come during the middle of grinding bear markets?”
As to whether this is a genuine rally or a dastardly break market trap – Dan had this to say...
“Bear market rallies can be powerful and convincing. And tempting. Don’t be tempted.”
Finally, on the whole R-word debate, just remember... it’s only a real recession if it comes from the Récession region in France. Otherwise, it’s just Sparkling Economic Pain.
Thank you for reading Bonner Private Research. This post is public, so feel free to share it with fringe-dwellers and mainstream wonks alike....
Meanwhile, Bonner Private Research’s Investment Director, Tom Dyson, continues to urge caution in the markets as money supply growth turns negative for only the fifth time in the past six decades.
Here is a snippet of his note to BPR members on Wednesday, shortly after the Fed’s meeting...
The Federal Reserve raised interest rates as expected this week. And continues with its plans for QT. Look at this chart. For the first time since 2004 – and only the fifth time is 60 years – money supply growth has turned negative. It’s one consequence of the Fed’s recent actions.
Source: Charlie Bilello, Twitter
Will money supply growth remain negative forever? Of course not. But it’s negative now and this is a strong indication that a recession and an economic bust are coming.
After three decades of wealth inflation, asset prices are dependent on cheap liquidity and money supply growth. Absent a Fed pivot, asset prices should keep falling.
We think there’s a big financial dislocation coming. Something bigger than the puny 18% decline we’ve already seen this year in the S&P 500. We want you to be prepared for it.
Hope must be purged
As Investment Director, my job is to design an actionable investment strategy to preserve our purchasing power through the bear market. This bear market won’t exhaust itself until all hope has been purged from the market. So we’ll need to be patient.
And remember: I’m convinced at the end of it, we’re going to be presented with a big opportunity – maybe your last, best chance to buy stocks at the beginning of a new cycle. You can only do that if you have the capital to take advantage of it.
We continue to recommend subscribers hold big positions in cash and physical gold, and avoid general stock market risk. We’re in a bear market. And we think there’s a long way still to go.
If you’re looking for a great place to start with Tom Dyson and Dan Denning’s paid research, you’ll do well to begin with the Bonner Private Research Strategy Report. In it, Dan outlines the “big picture” view he and Tom have taken, as well as some tactical moves they’ve designed to keep readers’ capital protected... and well positioned for opportunities that arise along the way.
Members also receive twice-weekly market updates from Tom and Dan, plus monthly reports, access to the BPR stock watchlist and occasional invitations to special, online events – like the private Zoom calls we’ve already hosted with Bill’s closest and most trusted analysts from around the world. Consider becoming a paying member today, right here…
And now for Bill Bonner’s missives from the past week...
“I don’t know about you,” a dear friend writes from Miami, “but I’m looking forward to getting back to Argentina. The prices here in the US are just insane.”
As it so happens, we’re heading home tomorrow, back to the Paris of the South. News reports are mixed from the frontlines down at the “fin del mundo.”
One friend worries the Argentines could be entering “a proper crisis.” Another frets that the government may well impose martial law before the upcoming elections as civil unrest grows amidst political uncertainty. (General elections are scheduled for October… if the current leaders can hold the administration together until then.)
We’ll have plenty more to say about the situation on the ground when we return. In the meantime, look out tomorrow for a short ‘n’ sweet Sunday Session, in which we’ll have some details for you about a project we’ve been working on behind the scenes, one we’ve been calling The Bill Bonner Roundtable.
Stay tuned…
Cheers,
Joel Bowman
Thank you for reading Bonner Private Research. This post is public, so feel free to share it with investors, savers, traders and hustlers alike...
I spit out my coffee laughing at the “Recession vs Sparkling Economic Pain” lines. Joel, even in the dark times, you have quite a way with words! Thanks for that; I needed the laugh.
We’re not in a recession. End of quote. Repeat the line.
I spit out my coffee laughing at the “Recession vs Sparkling Economic Pain” lines. Joel, even in the dark times, you have quite a way with words! Thanks for that; I needed the laugh.