Deflation and Recession

by JDH on August 6, 2022

Yup, I said it.  Deflation.  I know, all of the stories in the media are about inflation, but look at the evidence: commodity prices are down significantly from their peaks in February.  Consumer expectations are crashing.

Ask yourself this: are consumers more concerned about inflation, or about interest rates?

The answer, for anyone with variable rate debt, is interest rates.  With higher interest rates it’s more costly to buy a house, or a car, or service your existing debt.  Less buying is deflationary.  Simple as that.

But unemployment is low!

Yes, but unemployment is a lagging indicator.

It takes time to hire and train an employee, so employers are always playing “catch up.”  Employers don’t say “I think I will be busier in six months, so I’ll incur the expense of hiring and training employees now, because I may need them in the future.”  No, when you are busy you start hiring, and as you get less busy you are reluctant to incur the severance costs to reduce your workforce, so you hang on to your employees longer than needed.

That’s how it works.

So, stay tuned.

Higher interest rates are crashing the real estate market, and everything else, and that will lead to much lower inflation this winter.

That’s also not good for the stock market, so be forewarned.

Or not.  What do I know?

See you next week.

 

Bear Market Rally

by JDH on July 23, 2022

The S&P 500 closed on Friday 6.5% higher than it was on July 14.  Is the correction over, or is this simply a bear market rally?

My guess: a bear market rally.

I will admit that the advance from the depths of the pandemic lows in March 2020 to the high on January 3, 2022, was impressive: 120%.  If you used the crash as a buying opportunity, you did very well.  But, as the chart above indicates, since then, the SPX is down around 18%, notwithstanding the recent bounce.

Here’s another perspective: since February 2020, just before the lockdowns, the SPX is up 16%.  That’s 126 weeks, well over 2 years, for a 16% gain.  That’s not nothing, but it’s also not a booming bull market.  A retest of the February 2020 top around 3400 is very possible, so I’m not deploying fresh capital at this point.

In fact, this mini-rally is likely a good opportunity to take some cash off the table, and live to fight another day.

This brings us to:

Bitcoin

Bitcoin is up almost 20% since the low on July 13.  Same question: is the the start of a new bull run, or merely a bear market rally?  The chart tells the tale:

This sure looks like a bear market rally.

It’s possible that the bottom is in, but it is also very possible that to confirm the bottom a retest is required, and that hasn’t happened yet.

So again, the logical strategy is to use the recent uptick to take some cash off the table, conserve cash, and be ready to deploy it when and if a March 2020 style collapse occurs again.

I have no idea if that’s how it will play out, but for now, that’s the game plan.

Let’s see how it plays out.  See you next week.

Bitcoin: The Story is Nearing the Next Chapter

July 16, 2022

Here’s the Bitcoin chart, as of Saturday morning, July 16, 2022: As you can see, from the top in March, Bitcoin has travelled in one direction: down. But, since the middle of June, a base may be forming. Or not.  We won’t know for a while.  So now, we watch the “fight” between the red […]

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Bitcoin: The Carnage Continues

July 2, 2022

The return on investment for Bitcoin, the last three months: April down 16.93% May down 15.75% June down 38.47% June was the worst month ever for Bitcoin. Not a pretty sight. Is this the bottom? We don’t know. Bitcoin traded at just under $17,600 on June 18.  As the chart above shows, it appears to […]

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Is the Bottom In?

June 25, 2022

Perhaps the bottom is in.  But probably not. S&P 500 Does this chart look like the markets have reached a bottom? No, it does not.  Enough said. Bitcoin The 5 year chart of Bitcoin is very informative. As we discussed last week, for the first time ever, in the current cycle Bitcoin dropped below the […]

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Bitcoin: Crash Confirmed (First Time Ever)

June 18, 2022

For the first time in Bitcoin’s history, the bottom of the cycle has crashed through the prior cycle all-time high. The last cycle peaked at just under $20,000 in December, 2017.  Bitcoin then collapsed to around $3,000 at the end of 2019, and then started an amazing bull run, taking it to almost $70,000 in […]

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Bitcoin: How Low Can It Go?

June 11, 2022

As I write this at 5:35 am on Saturday, June 11, Bitcoin is trading at around $29,000 USD.  This is not good for the Bitcoin bulls. As the chart indicates, $29,432 is a significant support/resistance level, as that level represents the approximate double bottom Bitcoin hit last summer.  It is now “this summer”, and Bitcoin […]

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Bitcoin: The Wasted Year

June 4, 2022

As I write this on Saturday morning, June 4, 2022, Bitcoin is trading at around $30,000 USD, which is where it was a year ago. Just under $30,000 appears to be a significant support/resistance level, so the strategy, for now, is relatively simple: Buy Bitcoin at under $30,000, and sell starting at $33,000, and just […]

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Nothing to report, again

May 28, 2022

Sell in May and stay away. See you in June.

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Still Nothing to Report

May 21, 2022

The DXY is still strong.  The markets, including gold and bitcoin are weak. It’s “sell in May and go away” time. Let’s talk again in a week.  Or a month. I’m on the sidelines for now. That’s it. Short and sweet.

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