Past Week Market Review

This week the markets did a 180-degree turn from last week when they were decidedly Risk On.  This week was a disaster for stocks and commodities. The S&P 500 was down 2.38%, the Rogers Raw Materials Fund was down 2.54%, and silver, which is part commodity/part money, lost 1.22% on the week. Copper was crushed on the week but gold outperformed as crude rebounded after its worst day in years. Is Dr. Copper hinting at a recession? What does the PhD economist commodity know? Meanwhile, the safety havens of U.S. Treasuries and gold rallied big time. The 30-Year Treasury gained 4.08% on the week as yields collapsed.

Keynesian religion has fouled up the global markets so badly that the world as God created it is being turned upside down. For example, for the first time in history, Germany’s entire yield curve including the 30-Year Bund traded with a negative yield. The 10-Year hit negative 50 basis points. European banks crashed on the week to their lowest since the Brexit vote (June 2016). Broadly, this was the worst three-day drop for U.S. stocks since Christmas Eve and the worst week of 2019… Stocks were, as always, bid in the last hour until Trump said he “could raise China tariffs to a much higher degree.” Nasdaq was the week’s biggest loser (and Dow lost the least of the majors).

Trump wants to see the dollar (see dollar index above) weaker, but with foreign central banks cutting rates more aggressively than the Fed, only Trump’s trade policy seems to be keeping the Fed inclined to cut rates. Danielle Di Martino Booth said on Fox Business last week that Fed minutes show it has been paying increasing attention to the value of the dollar. As she noted, his advisors tell him the dollar is overvalued 28% vis-à-vis the euro, and he keeps harping about the unfair currency situation. As Alasdair Macleod has opined, this picture is looking more and more like a currency race to the bottom not unlike what took place in the 1930s when gold was the premier investment, especially for gold miners.

It should be noted that last week not only did U.S. equities plunge, they also reached some very key technical levels. For example:

  • S&P 500 tested its 50DMA (2927) and 100DMA (2900)
  • Nasdaq tested its 50DMA (7971) and 100DMA (7927)
  • Dow broke below its 50DMA (26472) and tested its 100DMA (26276)
  • Trannies broke below the 50DMA (10358) and 100DMA (10478) and tested its 200DMA (10281)

FANG Stocks were down every day this week (second-worst week of the year). Cyclical stocks tumbled, their worst week of the year, dramatically underperforming defensives. Bank stocks were battered, tracking the collapse of the curve. Despite this week’s carnage, bonds and stocks remain dramatically decoupled. Credit spreads blew wider on the week. And ominously, the yield curve from the three-month to five-year timeframe is inverted. (see chart on left)

It’s hard to think of a time lately that has looked better for gold. As far as the other safe haven, U.S. Treasuries, one wonders with gold rising dramatically how much longer people will be willing to buy those instruments, especially if, like Germany, yields head toward zero as gold rises dramatically higher and in percentage terms more rapidly than gains on Treasuries. Yes, I know in theory it’s possible that you might get paid to borrow money but what good will that do if the global banking system is headed for a race to the bottom such that fiat currencies actually reach their intrinsic value of zero? How will the world not notice the need to swap worthless paper with zero intrinsic value with honest money like gold and silver? As I say, it’s hard for me to think of a time in my lifetime that is more bullish for gold than now. Perhaps before my lifetime, during the 1930s depression it was more bullish for gold. It was during that decade when the Dow fell by 89% and Homestake Gold Mining rose by seven-fold and paid enormous dividends. I honestly think we may be approaching a change in the global financial architecture that may rival or surpass that bullish state for gold. The laws of economics and human nature have not been repealed, no matter what all the smart asses from Harvard, Oxford, and Yale might tell you.

About Jay Taylor