The major U.S. stock indices continued to hold on to their strong gains from the previous week and all except for the Russel 2000 finished practically even with their previous Friday’s close. The Russell 2000 did a little better than even that by finishing up 1.19% for the week. The Russell 2000 performing strongly or outperforming the other major indices usually signals the market is starting to favor taking more risk again. The strength of this leg up from its 11 February lows has been exceptional and shows no visible signs of abating in the near future. The rise in oil and other commodity prices have been the driver of this latest stock market bull leg and this in turn has been fueled by the fall in the U.S. dollar, of which commodities are primarily priced in. Since the stock market indices are trading near their recent highs we probably will have a temporary pullback before continuing up.
Banks, Insurance, and other financial companies took a big hit on Friday when the abysmal jobs report came out and was way under expectations. This most likely sets back the Fed’s likelihood of raising interest rates at its June meeting which would have favored banks and insurance companies. Banks would have benefitted from the increased spread between the rate for their loans and the rate they pay for deposits. Insurance companies and public asset managers are desperate for higher yielding bonds to meet their future potential payouts without taking excessive risks in other instruments or markets.
At this stage of this rigged fascist economic game, there are few low risk investments and any paper investment instrument at this point would have to be termed as risky. There are few Triple A rated companies left as compared to as recently as just 10 years ago, another sign of the increasingly hollowed out economic conditions we all have to operate in. Companies over the last several years having been taking on much more debt while their investment in future capital expenditures have drastically decreased because of the lack of investment opportunities. These companies have been using the bulk of their increased debt to fund stock buybacks and dividends, something intended to buoy their stock prices but simultaneously making their companies much more vulnerable to unexpected volatility in the marketplace. This is a recipe for disaster at some point, especially when you consider the increasing fragility of the domestic and global economies.
When even the almighty U.S. government cannot figure out a way to doctor their latest jobs report to make it look at least presentable and support their narrative that the economy is recovering then things are going from bad to worse. The only reason the unemployment rate is so low is due to the duplicitous manner in which the government calculates the rate which is intentionally designed to mislead the public. Anybody who thinks the unemployment rate is now below 5% has rocks in their head – take a look around.
The dollar declined sharply on Friday, again thanks to the terrible jobs report. The market knows if even the government cannot “fix” their economic reports to support the government narrative, then the economy is really much worse than we are being told. Unemployment is a lagging indicator for the health of the economy and the jobs created report is a close relative of the unemployment rate. So when the jobs created number goes south, as on Friday, then the unemployment rate going higher is sure to follow in the not too distant future. And that takes some doing to make the highly massaged and duplicitous unemployment rate as calculated by our esteemed government to rise.
If it was not for all the central banks working together printing so much paper money and keeping interest rates at historically low levels this bubble would have burst long ago. Economic fundamentals are at a loss to explain the high levels of the stock and bond markets of the world. The central banks are working so hard at keeping the markets propped up because they know the dollar along with their own currencies are backed up by highly indebted governments, companies, and economies that will not easily recover from the mess that is getting ready to happen. Their ongoing power and wealth from this rigged fascist economic machine is in serious jeopardy and they do not want to lose their position atop this financial pyramid. They are doing anything and everything, including destabilizing and even destroying their own countries in hopes that they will be looked upon as the saviors to continue on and clean up things after the collapse. Also, I think they are destabilizing their own countries to make it more difficult for the citizens of their own countries to organize and boot these criminals out, whether in government, banking, or big business.
I expect the dollar to continue to fall although it may take a breather for a week or two after its precipitous decline on Friday. The only reason that the dollar appears strong is because the other major central banks have been printing enormous amounts of funny money too. All of these governments are grossly and irreparably in debt with hollowed out economies. As the dollar falls, watch for interest rates at some point later to start to rise. The excessive dollar printing and derivative machinations has held interest rates down but as things deteriorate further the ability to accomplish this will lessen. One beneficiary of the sinking U.S. dollar will be the U.S. stock market, particularly the commodity-related sectors. The old bull market leaders such as those in the Nasdaq 100 should continue to lag.
The only two economies that may come out of this substantially intact are Russia and China. Russia has relatively little debt, huge energy resources and production capabilities, significant agricultural production capabilities, and reasonably sane leadership. China may or may not change its leadership as an outcome of what is about to happen but they have been a country for a few thousand years. That said, it is not impossible to fathom that they could change how they are organized and split up into economically cooperative but separate nations. They do have a strong and developed economy with a workforce that has not lost its incentive or ability to work and take care of themselves. China also has a viable long term economic vision for itself. Both Russia and China own large amounts of gold with large precious mining capabilities as well. Japan is another country that has a developed economy and strong workforce. Much has been said about their slowing population growth but that is important only under a central bank model where excessive, unnatural growth is continually needed due to funny money printing that keeps this rigged, crooked scam going for the enjoyment of the few – big government and their fascist cronies.
Central banks will probably be much less powerful after the collapse because what is going to count in the future is things of real value which do not include paper money and excessive government. It will be up to the people in most countries to get organized and figure out a way forward because most governments will be broke and their mercenaries and foot soldiers are not going to work for free. Unless you have something of real value, like gold, other countries will not want to trade with you. Paper money without gold/silver backing will not do when trading outside your own country.
The oil markets have continued to demonstrate exceptional strength since the 11 Feb bottom. WTI oil is up against the $50 level which may provide some near term resistance but the path to the low to mid $60’s looks probable. The fact that Russia and a few of its major banks issued dollar denominated bonds a couple of weeks ago tells me that they are confident that the oil price will continue to rise and that they expect the dollar to continue its decline. The Russians must know something that they are keeping to themselves.
The precious metals prices spiked up on Friday due to the bad jobs created report. The sharp rise in gold usually symbolizes a decreasing confidence in government. While the sharp price rise certainly got everyone’s attention who follows the precious metals markets, the rise took the gold price only up into the middle of its 14 week range. Gold still has much resistance to fight through to get back to the top of this range after its recent four week decline. This looks like a strong bounce off the bottom of its range but still nowhere near to breaking out of the range to higher prices. I expect to see gold roll over again and then break through the bottom of its range and decline below $1000.