Tuesday, April 14, 2020

Just Buy What the Fed is Buying

The stock market continued rallying after a brief resistance that the 50% retracement level.

Some are already throwing in the towel admitting that some are just buying what the Fed is buying.  Investing is Dead

This was exactly my point last week in noting that the Fed is now committed to buying corporate bonds, including Exchange Traded Funds that are less than stellar quality.  

The market continues to soar even as the economy is shut down with no idea when it will reopen and what consumer attitudes will be.  It will be a brand new world perhaps.

The irony here in this scene is the continual narrative that we have been hearing for the past 12 years and even longer.  The rich continue to get richer, thriving despite millions of American workers being laid off or furloughed.

The classic tale of two cities.  I remember way back when, I would hear Rick Santelli on CNBC jumping for joy as economic numbers would come in weaker than expected, dropping interest rates further.  This is great for the homeowners, he would exclaim, you can refinance at a lower rate.

Markets would rally across the board, even as they are doing today.  But the economic fundamentals continue to weaken.

What can one do?  I can imagine many are kicking themselves for getting out of the market only to see it come roaring back.  Most certainly it will probably keep roaring on until every last one gets sucked back in.  And who knows, the market can go much higher.

As one theory goes, a 50% correction would be normal.  Basing from the lows of 2009, we came close to a 50% correction, but not quite.  A rebound from the 50% retracement can be expected to move to the -.23 Fib level, above 4000 on SPX.

We can see that Stochastics, the lower indicator, is coming out of a bottom and could start heading up.

Anything is possible I suppose but the markets are being levitated on the same old suspects, the FANG stocks:  Facebook, Amazon, Netflix and Google.

Amazon hit new highs today as did Netflix.

Just as in the past, it's been but a few stocks boosting up the indices.  These are the highly capitalized stocks that have the biggest influence on the market averages.

Compare those to a former market darling, DuPont.  Traditionally one of the bluest of blue chip stocks, DuPont along with other "quality" stocks.

I will stick by my guns and anticipate that a further market decline will play out.  While I don't hold the possible depression scenario that I posted a few weeks back, a normal correction should at least exhibit an A-B-C corrective wave.

At some point, we should get another leg down, retesting the low or breaking through to a lower low.

Still that won't be the end of the world.  I view the move from 2009 to our recent highs as merely a Wave 1 of a 5 wave bullish structure that can carry us higher for at least another decade.

While some states might begin opening up next month, there are going to be quarters to come showing very bad economic numbers.  The emerging optimism is fueled by incredibly massive amounts of Federal Reserve and Treasury Department stimuli.  Markets are pretty much machine run these days and previously, much of the fuel came from corporate buybacks.  Those buybacks may be drying up as those corporations taking the federal stimulus will be restricted from buying back stocks.

Seems certain that earnings will fall and PE ratios, book value and other fundamental metrics will look awful.


Bottom line, the market continues to be a casino, a ponzi scheme, a bigger fool theory scam.  I continue to favor cash and gold.  Massive money creation SHOULD result in precious metals prices improving.

Gold continues to surge and broke through to new multi year highs this week.  Gold stocks as well have been soaring, many touching new high levels as well.

Physical gold remains scarce and that which is available is fetching close to a 10% premium over spot price.  Keep in mind, physical metals as well as gold stocks are a tiny market.  If institutional buyers start moving into this area, prices can be expected to surge.

One of my favorites is Franco Nevada Corp. a gold streamer.

Another is Barrick Gold

These are the stocks that I've been investing in and finally they are starting to explode.

I am also building a cash reserve in anticipation of grim economic times to come, should that play out.

Already, many are unable to pay their mortgages and while there is some federal relief on this, how long can mortgages go unpaid until another wave of defaults sweeps through the world.  Real estate prices are also in a bubble.  Prices have been driven by easy credit and perhaps now, that bubble will pop.  I'm hoping that finally I can buy my beach house.

No comments:

Post a Comment