Will Powell save the day or DOOM Us All on Testy Tuesday?

Will Powell save the day or DOOM Us All on Testy Tuesday? ...


Phil: This is not a pullback, but a correction.

As we were coming off a Powell-filled rally that was no longer to pay attention to, I reminded members on "Federally Fueled Thursday Dont Get Excited!", and that as we pushed back to S&P 4,300 at the time, we took the opportunity to profit from our hedges. As I said in our Morning Report (which you should subscribe to HERE only if you want to know what the market will do before it does it):

The remainder of our RECENT decrease we made, not half of the 20% retrace from 4,800 to 4,000. I say retrace, not decrease as a DROP would be 0.2 x 4,800, which is 960 points to 3,840, but according to our 5% Rule, 4,000 is the correct major support for the S&P, and 4,800 was simply an overshoot by traders who did, in fact, get too left. That means the return to 4,000 is a C

If 4,000 is our correct trading range then our correct trading range will be 3,200 to 4,800 for years to come. I don''t think we''ll see 3,200 unless Putin does something very naughty or Covid comes back hard because the Fed and our soon to be elected government are very unlikely to let that happen and, since Biden reduced the deficit to $2.2 trillion last year we''ve have $1 trillion left to play with in emergencies.

The result of this chart is now a reality:

What we really care about today is our Bounce Chart, which we discussed later that day in our Live Member Chat Room:

  • Dow 36,000 to 28,800 would be a 7,200-point drop with 1,440 bounces to 30,240 (weak) and 31,680 (strong).
  • S&P 4,800 is 20% above 4,000 and that makes it an 800-point drop with 160-point bounces so 4,160 (weak) and 4,320 (strong).
  • Nasdaq is using 13,500 as the base. 14,100 is the weak bounce and 14,700 is strong.
  • Russell 1,600, would be about an 800-point drop with 160-point bounces to 1,760 (weak) and 1,920 (strong)

The Dow was still black, and the Nasdaq was all red but now stands at 11,800. Now that the Nasdaq has broken down, 12,000 should be the CORRECT base for that index and that means we re-calculate the drop from 15,000 (never touched it) and that''s the 3,000-point drop with 600-point bounce lines, so 11,400 is an overshoot (on the cusp) and this chart needs to hold or we may need to reconsider where the bottom

The market didn''t realize what we believed we would reach this time back in the Fall, when we calculated the true value of the S&P and the Nasdaq, thus it''s no big surprise that here we come. The market has finally realized exactly what we expected.

The key is that I have to retrain everyone to invest in a flat to down market something we haven''t been in since early 2009. Last week, we made many, many portfolio adjustments and they were generally moving to lower target ranges because, if you are sitting on positions and hoping they return to their old highs so you can be "even," you must ditch that "strategy," especially if you are an options player.

Q2 will be a real bummer we''ll be lucky if we don''t go negatively on a global basis. I don''t think the US is going to be hit as much as the rest of our war-torn, covid-stricken, inflating, and on-fire planet, as we, very fortunately, have two big oceans keeping us somewhat insulated from the madness (not that we don''t run our own madness here in the United States, though).

America is about as isolated from the rest of the world as Australia, which is why we tend not to care about what happens in other countries. Europeans didn''t even find America until 1492, but that wasn''t America (dumb-asses!) and the Vikings were there first anyway. Australia was "discovered" in 1606, which came as a surprise to the people who lived there for the previous 50,000 years.

Well, here''s why it''s a big planet, and we either need to spend the next 30 years restoring it at an affordable price of $5Tn per year, which is "only" 5% of our global GDP, and this would anyway help the global GDP, but this only works if we stop fighting each other and work together.

If we don''t, then God will determine who gets stuck with the bills due to natural catastrophes, scarcity, and disease. Rich countries, of course, are betting that the rate we receive from 330 million citizens for not doing anything about Climate Change will be lower than the rate we will get for it. Plus, we still have to live in air-conditioned comfort when we travel to see a Paul McCartney concert (he''s in Florida Wednesday) than half the world''s families use in a year.

The Economy can''t be expected to be the huge growth engine it once was. It''s generally foolish to pricing stocks for huge growth, especially established ones like AMZN, NFLX, and GOOGL, because they''ve already saturated the market and now they spend as much time coping with catastrophes as they pacify new markets.

Although global population is already below 1%, Covid has announced that we would now top out under 10 billion people before human consumption fell. From 1968 to 1990, growth increased by 2% to over 5Bn customers and now we''re at 8Bn customers, but now that''s slowing down and it''s difficult to grow your company''s bottom line without new customers, not it?

KO paid $52.86 up 83x in 50 years in 1971 but the world is not a big profit because of the fact that KO will not be at $5,217.38 in 2072. KO grew at 9.25 percent for 50 years to get from 0.75 to $62.86, benefiting from the rise of international commerce and a double of the population. Since 1971, KO will be lucky to grow 5% per year to $720.84 in 2072.

We need to look at all of our investments. Unless we begin trading with other planets (something Bezos, Musk, and Branson are working on), this is a closed market, and becoming smaller every year, so this "growth" that we take for granted is simply not going to be there AND if we decide to do something about Global Warming to ensure humans make it to 2072, shrinkage becomes a real possibility.

Just as our parents, who purchased $50,000 in the 1970s when $50,000 was a two- or three-year salary perhaps we''re not really such clever investors we''ve just had a blessed time living in a nutshell. We''ll now have to work a little harder to find value, and we must keep our expectations for growth to a more reasonable level.

Inflation is shifting to real growth, but how long will it last before prices rise enough to send the consumers back to their shells? We''re not there yet, we still have Credit Cards to max out and Home Equity lines to tap (like our parents did) and I still believe the Government has given them additional stimulus to protect their phoney-baloney jobs.

This inflation cycle, fortunately, began with higher salaries (the push for $15 minimum wages) and then scarcity, which leads to higher prices and demand for higher wages, etc. so the consumers are not drastically behind yet but we''d better keep our eye on it because this is now a game of musical chairs and someone will end up on their ass!

PMI will be held at 9:45, and Powell will be able to spin it at 12:20. New Home Sales are expected to remain slow at 10 and the Richmond Fed might go either way. Tomorrow we have Durable Goods, which have been difficult and would be an early indication that Consumers are cutting back, so we''ll watch it closely.

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