Stock Movements Make No Sense

I’ve given up trying to figure out why stocks move up or down in the short term. With equities still valued at nose bleed levels, and interest rates needing to rise dramatically higher from here to return inflation back down to the Fed’s target 2% levels, the only reason I can think of for this past “risk off” week is that there are simply too many trillions of dollars burning a hole in the pockets of Wall Street fat cats.

Perhaps the decline in the CPI from a 9.7% annual rate for June to an 8.5% rate for July was an excuse to head back into the casino. But judging by the Treasury market, it doesn’t look like fixed income investors are buying the notion that the Fed is gaining control of inflation. Nor does it seem commodity markets are buying a disinflation narrative either, judging by the Rogers Fund rising by 4.62% this week and Silver jumping 4.79%. And keep in mind that the latest print for the PPI is 9.8%. That’s down from 11.3% in June, so the rate of price increase may be moderating. But with interest rates more negative even than they were in the 1970s and with a lot of inflation in the PPI pipeline, and with stocks still more overvalued than at any time in history, I remain generally bearish on the equity markets with the exception of stocks that represent real value and life-sustaining commodities like oil & gas producers as producers of food and real money—gold.

About 80% of the decline in the PPI and CPI resulted from a decline in energy prices. If you believe oil and gas prices are headed south to any significant extent, I’m not buying that, even with significant demand destruction as we head deeper into this recession. I’m saying that because of the ongoing anti-hydrocarbon policies of western countries and the ongoing anti-Russia policy of NATO. In other words, we have an ongoing supply shock and there is no reason to expect Russia to let up in its war against Ukraine. It sees NATO’s intrusive policies as an existential threat and its very life as a sovereign state depends on holding off NATO’s desire to dominate Russia, not only economically but with western Woke culture that Russia is dead set against. Moreover, for a long time, Corporations have enjoyed massive profit margins while labor has gotten the shaft. There is certainly a move toward redistribution of income, at least in rhetoric from the Democrat Party, even if their policies continue to destroy private sector middle-class jobs. Leave it to the Democrats and there would be no middle-class private sector jobs at all. The Democrats are setting up for 87,000 IRS agents to look for ways to pick the pockets of private sector workers and crush the first and second Amendments. And we should expect far more giveaways in the form of checks from Washington that encourage people to stop working. All of this is inflationary.

As for gold, I believe we may have turned the corner this week. According to Michael Oliver, an August futures gold price that exceeds ~$1,783.40 on Friday on the August futures contract would put the price above the 50-day average. It actually closed the week at $1,798.60. To gain confidence that we turned the corner, Michael would also like to see a bit more strength in the silver relative to gold, because when we are in a real bull market for precious metals, silver normally outperforms gold.

About Jay Taylor

Jay Taylor is editor of J Taylor's Gold, Energy & Tech Stocks newsletter. His interest in the role gold has played in U.S. monetary history led him to research gold and into analyzing and investing in junior gold shares. Currently he also hosts his own one-hour weekly radio show Turning Hard Times Into Good Times,” which features high profile guests who discuss leading economic issues of our day. The show also discusses investment opportunities primarily in the precious metals mining sector. He has been a guest on CNBC, Fox, Bloomberg and BNN and many mining conferences.