Genius Musk!

I have posted something about a startup company developing a hyperloop train (here and here). I personally happily have some stake in it🤗.

Now I just read an interesting piece of writing that Musk's Boring Company is also entering this field. As a matter of fact, hyperloop is the brainchild of Musk and I'm surprised to learn that he has even given out quite detailed descriptions about the physics for the technology. I must say he is really a genius! I wish I could also have the opportunity to invest in his Boring Co some day. 

The Boring Company's follow-on announcement is even more exciting…

We had a look on Tuesday at how Elon Musk's Boring Company is cashed up and ready for business.

Well, the story just got even more interesting.

As a follow-on development, The Boring Company revealed that it plans to test a full-scale hyperloop later this year.

This is huge news.

For the sake of newer readers, hyperloop technology utilizes magnetic levitation and vacuum tubes to power super-fast trains at speeds of 600 miles per hour or more.

We talked about this concept in late 2020 when Virgin Hyperloop, now a Richard Branson company, was gearing up to test a hyperloop track in West Virginia.

Yet this technology all stems from a white paper that Musk wrote back in 2013, spelling out how the physics underlying hyperloop technology work.

To give us a visual, here's an image from that white paper:

Hyperloop White Paper Sketch

Source: Tesla

Here we can see a rough sketch of what a high-speed hyperloop train would look like. And Musk was even kind enough to outline how the physics would work as the capsules zip through the transportation tubes.

Hyperloop Physics

Source: Tesla

At the time, Musk was far too busy with SpaceX and Tesla to take on another project. So he put his idea to paper, and then he made the white paper available to the world. Anyone was free to take the work and run with it.

In fact, Hyperloop Technologies, which later become Virgin Hyperloop, was formed on the back of Musk's paper. Another company, Arrivo, tried to do the same.

As for his motivations, Musk was responding to a high-speed rail transportation project proposed in California. The project could have cost taxpayers $68.4 billion… if everything went perfectly.

Musk showed that a hyperloop system of the same size would cost less than $6 billion. That's over 91% less expensive.

Now that SpaceX is humming, and Tesla is dominating the EV and autonomous driving market, it appears that, incredibly, Musk has some bandwidth to bring this idea back to life. With The Boring Company fully capitalized, he has the perfect opportunity to expand the business into hyperloop technology.

As Musk pointed out, we can build this technology at fractions of the cost of a high-speed rail system. As such, it can make public transportation far more efficient. Plus, we can also ship cargo through hyperloop systems as well.

Musk thinks hyperloop technology is the fastest way to move people and cargo over any distance that's less than 2,000 miles. That's the value proposition here.

And here's the thing – all the technology needed to build out hyperloop systems already exists. It's not as if some new technology needs to be invented. 

We have already seen a proof-of-concept with Virgin Hyperloop's tests in West Virginia. The tech works, and as usual, Musk will do it even better.

That's why Musk is so confident that The Boring Company can build and test a full-scale hyperloop later this year. He has both the capital and the engineering wherewithal to make it happen.

And my guess is that once large municipalities around the world see the advantages, they will extend massive contracts to have their own hyperloops built. I would not be surprised to see The Boring Company ink a nine-figure deal as early as next year.

Given how fast the Prufrock machines can dig tunnels, we may just see our first hyperloop in the U.S. within the next few years.

by Jeff Brown

Sell the rumor buy the news

This is really a very unusual week with some extreme volatility not often seen. I guess it is somewhat related to the fact that several major tech companies like GOOG, FB, MSFT, AMZN, APPL etc were all reporting their earnings this week. Since extreme disappointment and negative reactions had been seen for a few used-to-be high flying darling stocks like NFLX and GOOGL, traders were quite nervous about their earnings and their future expectations. This has caused a lot of panicky selling and buying alternated within days. I tried to decipher the underlying tone of the market and here are the notes I sent to my DW Family during the week. I tried my best to help my Family to navigate this challenging time period with an aim of gaining some. Ultimately, I'm more bullish than bearish right now, betting on a more sustainable rally after seeing a more solid bottom base been made. My hunch tells me that the real turnaround may come when the second rate hike is announced on Wed afternoon next week. 

Monday/Apr 25

Today's selloff has made the market decline to an extreme oversold status not often seen based on various TA indicators. One thing to note for today's 70 points tank is a declining VIX and increasing junk bonds, which suggests no further panic added for the strong decline. This is usually seen during the bottom. I'm willing to bet we will see a huge turnaround soon, if not today. So I'm adding more SPX/SPY gradually today.  

Tuesday/Apr 26

I know it is a bit painful to see a wipeout of all the paper gains from yesterday's SPY calls and even some losses. But technically today's decline is not only expected but also bullish to shake out those weak hands and set up a more strong base for the next leg up. With today's move down, I think we can expect a more sustainable rally in the days ahead. So keep the SPY calls. I even added a bit more to increase my positions. That's how I see this near term bullish trend.

Wednesday/Apr 27 

Poised for a "rip your face off" rally

It was another brutal day yesterday and the decline was much more severe than I expected. But here is the thing: Now… technical indicators are in an even more extremely oversold condition than they were intraday on Monday – before the big reversal. The VIX is higher. The McClellan Oscillators are lower. The S&P closed yesterday 170 points below its 9-day EMA – which is an absurdly oversold condition. VIX put options that expire next week are trading at a 100% premium to the value of the equivalent call options..............

The bottom line is this…

Technical conditions, and investor sentiment, are at levels that usually occur near bottoms in the stock market. So, it seems to me the short term setup is more bullish than it is bearish. 

On the upside, my minimum expectation for a rally is towards 4340ish. But, if we get the sort of "rip your face off rally" we saw in the back half of March, the S&P could pop back up towards 4500. Back then we saw a 400 points jump for S&P within 2 weeks. Maybe it is too much to ask this time, but I cannot say it is impossible. After all, the market has the habit of surprising everyone in either direction.

Thu/Apr 28

If you follow my posts in the past few days and dared to buy SPY calls during market panic selloffs, the SPY calls should have very nice paper gains by now.

If doubled, sell half to lock in the gain and leave the rest for more gains. Or add a protection arm.......... Below is just an example. I will not track this as it is too complicated for me to do so.

Given today's rather panic buying, we may see some selloff overnight or tomorrow. But I still think more gain is possible. If S&P can overcome 4300, it may very well shoot up towards 4500. However, it won't be a straight line up. So let's play safe.

Apr 29/Friday

The S&P 500 managed to rally all the way up to its major resistance at 4300 and falling back 20 points in the final hour. Still, the index held onto a 103 point gain – which is an impressive one-day rally.

Futures are down 30 or so points as of now – which is somewhat less impressive, but not entirely unexpected. After all, the traditional pre-FOMC pattern is for the market to decline on the Friday and Monday before a meeting. The weakness is further strengthened by the disappointing earnings from both AMZN and AAPL. That's the most challenging part for this week as nearly all the heavy weighted stocks were reporting earnings this week, which has driven traders crazily in either direction.   

 So… the most bullish setup we could get today, which would set the stage for a multi-session rally, would be for the S&P to decline modestly today – not giving back more than 50% of yesterday's gains – while the VIX declines slightly.

The most bearish setup would be for the market to give back everything it gained yesterday, and for the VIX to rally back above its upper Bollinger Band.

I of course don't know exactly how the market will play out as of now but I'm leaning more towards the bullish side, given how depressing the market is in general. Glad we have either sold some or added short arms to hedge the nice gains seen yesterday. 

Friday afternoon: 

Well, we definitely see the most bearish case today. However, I still see a good sign. Not only SPY is back to the extreme oversold condition rarely seen, the momentum MACD is showing positive divergence for many timeframes, suggesting this selloff is near its ending and we may see another "Rip your face off" rally soon. Maybe another Monday turnaround? No one knows but I won't rule this out. My gut feeling tells me the most likely strong rally may be come with a "Sell the rumor buy the news" moment. That's Wed when the Fed announces its next rate hike. People are extremely nervous at the moment heading into this meeting but as soon as it is done, maybe we will see a huge relief rally as long as there is no further surprise. I doubt we will see more surprises at the moment.

Bitcoin in Argentina is a necessity

Forward a couple of interesting stuff with some unique perspectives why Bitcoin/crypto has a long life to live!

• For most of us in the developed world, Bitcoin is still a curiosity. In Argentina, it's increasingly a necessity.

The Wall Street Journal had a long piece this week about inflation in Argentina, now running at an official 55.1% year over year.

For some folks there, "They prefer the volatile asset of Bitcoin as opposed to the peso, where they know they will always lose," says Damian Di Pace of Focus Market Consultancy.

• But it's not just the dollar pricing of oil and other commodities that could push the rest of the world toward crypto. 

"What if they do sanctions on us? some countries are probably thinking…

"What if I can't secretly buy oil? other countries are definitely thinking…

"What if the dollar falls apart and my currency is pegged to the dollar? other countries are probably fearing…

"All of these countries (and this list is about 100 countries) are thinking, Maybe I need a new currency. One that is globalized so no policy can be directed at me.

"Maybe they need cryptocurrency.

"That was the reason crypto was originally developed in 2009. Ultimately, society will lose trust in country-issued currencies and go to a more 'democratic' currency like Bitcoin."

Gold miners are relaxing from an impressive thrust (by SentimenTrader)

Gold and gold stocks have got a great run in the past few weeks, so much so that they have gone a bit ahead of themselves. Anyone chasing hot trends are usually getting killed, especially if they are too aggressive. Right now, we are seeing a good dose of correction for precious metals, which may continue for a while. Nevertheless, I don't think the uptrend for it has completed already and I still think there is a good chance we will see a lot more upside for gold to go after the current correction is done. I'll be buying more when the moment comes.  *****************************************************************************************

Gold has had a tough time over the past week and is already trading down to a two-month low. There isn't a perfect correlation between gold and the companies that mine it, but miners tend to move along with the price of gold. Due to what had been an excellent multi-month run, the percentage of gold miners trading above their 200-day moving average surged above 90% last week before pulling back in recent sessions. During structural bear markets, it's rare to see thrusts like this, but this is the 3rd one since 2018. Extreme cycles in long-term trends have led to outstanding long-term returns for mining stocks over the past 40 years.

What the research tells us

Earlier this year, fewer than 10% of gold mining stocks were trading above their 200-day moving averages. That surged to more than 90% by last week Similar cycles from one extreme to the other tended to precede long-term gains in miners Gold prices also tended to rally

How America Became La La Land

Nothing seems to be working. And no one seems to care.

By Victor Davis Hanson

April 20, 2022

America these last 14 months resembles a dystopia. It is becoming partly the world of George Orwell's Nineteen Eighty-Four, partly the poet Homer's land of the Lotus-Eaters.

Nothing seems to be working. And no one in control seems to care. 

The once secure border of 2020 vanished. Two-million people have crossed the southern border illegally in the last twelve months. Millions more are on the way. 

The Biden Administration unilaterally and simply destroyed existing immigration law. 

What followed was surreal. The administration claimed COVID was again on the horizon. So it justified forcing American citizens to keep wearing masks in public buildings and transportation. But at the same time, it waived all such requirements for illegal entrants.

Citizens who obeyed our laws had to mask up; foreign nationals who broke them did not need to take such precautions. 

Biden blasted as near-criminals mounted border guards who used long reins to steady their horses. When investigations cleared them of wrongdoing, he went mute. This administration apparently sees its own American law enforcement at the border as criminals, and non-Americans who break our laws as their moral superiors.

Biden then concocted the perfect recipe for bringing back the inflation of the 1970s.

Print more money. Run up multitrillion-dollar annual deficits. Borrow trillions on top of a $30 trillion national debt. Send generous checks to workers for staying home. Shrug at historic disruptions of the supply chain. 

When reminded that his deliberate policies are the classic roads to inflation, Biden went fetal and ignored the warnings. Or he lashed out and blamed anyone and anything for his own suicidal agendas. 

First, we heard inflation was transitory. Then it was a mere concern of the elite. Then it was only a matter of exercise equipment being in short supply. Then it was solely because of Vladimir Putin. Then, somehow, it was also the result of Donald Trump. Then it was an organic phenomenon that presidents had little power to stop.

America was energy independent until the arrival of the Biden Administration. On the orders of his Green New Deal masters, Biden immediately began canceling federal oil and gas leases. He stopped new pipelines. He jawboned against the private financing of fossil-fuel production.

Biden was hellbent on his way to fulfilling his campaign promises of eliminating the use of natural gas and oil on his watch. 

Then prices soared and the public grew irate. In response, still more incoherence followed. 

The Biden Administration would not reverse its destructive energy policies. But as it floundered in desperation, Biden begged American enemies Iran, Russia, and Venezuela to pump more oil on our behalf. In vain, it beseeched Saudi Arabia to produce more of the hated icky stuff that we had in abundance but would not fully produce ourselves. 

Biden tapped the strategic petroleum reserve. Yet the existential peril was not war or natural catastrophe but Biden himself and his far more dangerous policies.

Abroad, we looked at the relatively manageable situation in Afghanistan and simply fled. The terrorist Taliban quickly took over and restored its medieval rule. 

The administration abandoned a $1 billion embassy and dumped a $300 million refitted airbase at Bagram. Over $70 billion in military supplies and weapons were left for Taliban terrorists. 

Thousands of refugees were airlifted, unchecked, into the United States. Meanwhile, hundreds of known translators and helpers of the U.S. military were left behind. 

As public outrage grew, in typical Biden fashion, he blamed the Afghanistan debacle on his generals. Then he blamed Trump. Then he denied that he had ever claimed the war was going well. 

In the end, the public was told the humiliating flight was a near-perfect logistical evacuation, as if America should be proud of being better at running away than it is at fighting. 

What explains an America that suddenly no longer works? 

First, all of these problems are self-induced. They did not exist until Biden birthed them for ideological or political reasons. Apparently, his administration wanted a changing, more favorable electorate and demography at any cost. 

Perhaps Biden was privately happy that cash-short commuters had to burn less gasoline. Maybe the more he printed money, the more he would be rewarded politically.

Second, Biden has no solutions to these self-created problems because of the ideological restraints the Left has imposed on him.

The administration fears the anger of the hard Left more than the furor of the American people. So it will not change, preferring to be politically correct and a failure than to be ideologically incorrect and successful. 

Third, when people object, this administration answers either by blaming others for its self-created mess or by seeking distractions. Now it is faulting gun owners for the crime wave it fostered, supposed "white supremacists" for the racial tensions it fanned, and Putin, whom it appeased.

The common denominator? Biden knows that he inherited a stable, prosperous America and has nearly ruined it. 

And he knows the American people know that too.

Don't expect for a quick ease of high inflation

I guess I don't need to say much about the two charts below, which clearly suggests what has propelled the high inflation at the moment.

So far there is no light at the end of the tunnel to expect a quick ease of the supply chain pressure. As such, it will be naive to expect we will see a meaningful decline of inflation in the near future. 

Be prepared to pay much more for nearly everything!

Where are we standing with the market?

I started the day with this note to my chat groups:
Yesterday's price action was quite bearish. I was expecting some weakness after a 2-3 day very strong rally but the decline was way more than I had expected. A lot of damage has been done by yesterday's crash. The index has support at 4375, then at 4340. If we lose that 4340 level then things could get ugly. The March daily low of 4180 becomes a viable target. The most bullish thing that could happen today would be for the market to open lower, test the 4375 level as support and then reverse and press higher towards 4415. That's a lot to ask for. But, if it happens then we'll be back in "rally mode." Otherwise, the possibility of heading into the weekend on a weak note is going to make a lot of traders nervous. Fortunately I have locked in most of the gains from the nice rally of the past few days. I haven't lost my faith for a bullish April yet but will be very cautious now to decide which direction I'm willing to bet on for the next few days.

Well, it was another brutal session today with S&P crashing down over 100 points, closing below 4300. Given the severity of the decline and damage done to the chart, there is a high chance that we will see a retest of the March low around 4180. The question is how soon this may occur. However as of now, the stocks are so oversold, it can hardly expect any immediate major decline from here. I'd think the market is poised for a rally first, so-called dead cat bounce for early next week. However, any rally attempt is doomed to be short-lived and will be followed by another leg down, which is likely another severe selloff to test the March low. That's how I have advised my Family to trade. By using a special option strategy (calendar calls), we can  bet on this dynamic movement of the market with very limited downside risk. The potential gain could be big. Given the huge uncertainty at the moment and swift changes of directions, it is prudent to trade with low risk high return strategies. 

Is A Bear Market Lurking?

Lastly, from a purely technical perspective, the monthly moving average convergence divergence indicator (MACD) also rings a significant warning bell. The chart below measures the difference between the 12 and 24-month moving averages. When that line crosses below the 6-month signal line, such suggests the market is at risk.

Notably, after the massive infusions of capital into the financial markets following the pandemic, the MACD line surged to levels never before seen historically. Such suggests an eventual reversion will be similarly dramatic. The shaded grey bars show when a previous sell signal got triggered. While there are certainly some false signals along the way, it is worth noting that many of the sell signals are closely associated with more critical market-related events, corrections, and bear markets.

Failing To Plan

Does the current sell signal mean a bear market is lurking?

No. Given this indicator is based on monthly data, it can take quite some time for an event to play out. As such, it will get perceived the indicator is wrong this time. However, as noted above, if everything remains status quo, it likely won't be.

But, if the Fed reverses course, starts lowering rates, reintroducing QE, and repurchasing junk bonds, then such would like arrest any approaching downturn at least temporarily. Such is what history has taught us.

In Bullish Or Bearish, we provided some simple guidelines to follow:

1. Tighten up stop-loss levels to current support levels for each position. (Provides identifiable exit points when the market reverses.)
2. Hedge portfolios against significant market declines. (Non-correlated assets, short-market positions, index put options, bonds.)
3. Take profits in positions that have been big winners (Rebalancing overbought or extended positions to capture gains but continue participating in the advance.)
4. Sell laggards and losers. (If something isn't working in a market melt-up, it most likely won't work during a broad decline. Better to eliminate the risk early.)
5. Raise cash and rebalance portfolios to target weightings. (Rebalancing risk regularly keeps hidden risks somewhat mitigated.)

Notice, nothing in there says, "sell everything and go to cash."

Given the weight of evidence currently at hand, it certainly doesn't hurt to plan and even take some actions to prepare for a storm if, or when, it comes.

If the environment changes, it's a simple process to reallocate aggressively to equities. By planning, the worst that can happen is underperformance if the bull market suddenly resumes.

But failing to plan entirely is the best way to fail completely if the lurking bear market awakens.

Lance Roberts

Be wary when markets split (by SentimenTrader)

In mid-March, headlines were dire. Stocks were plunging, inflation was picking up, and headlines were filled with the potential of nuclear war. During this mini-panic, the "smart money" became the most confident in a rally in years. In the weeks following those extremes, buyers entered in force and triggered several breadth thrusts and impressive internal momentum. Those developments have a long and compelling history of preceding even more gains in the months ahead.  Not everything is hearts and roses. There are some worries, including the fact that the market environment hasn't been able to turn healthy. The best thrusts tend to see little give-back from the initial surge, while this time, we've seen a persistent leak almost from the get-go. One of the requirements for a healthy environment is that 52-week highs on the NYSE have to outnumber 52-week lows. That's not happening with any consistency. Not only that, there is currently a remarkable split in the market, with too many securities at both extremes. The HiLo Logic Index was above 4% again on Friday, meaning more than 4% of NYSE issues hit a 52-week high, and more than 4% of them fell to a 52-week low. That is not what bulls want to see.

What the research tells us... The S&P 500's annualized return when the HiLo Logic Index is above 4% is a miserable -22.1%. A similar split is happening within the S&P 500 and on the Nasdaq exchange. At the same time, investors are pulling back on leverage after a big surge.

Is History Repeating Itself?

Everyday I'm seeing a lot of market related information from various sources. I have presented many bearish side analyses in the past few weeks but let me also present some bullish side data to balance my view point. After all, I'm not a permanent bull or bear in any sense but a investor and trader to both sides depending on the market status at the time. 

The data below is a good one with a convincing historical perspective that we may learn from. My take is that the market may be setting up for the next bull run but most likely we probably will see a lot more downside first before an ultimate bottom is settled in. This may also involve a recession if the Fed is going crazy with the rate hiking as they are telegraming to the market. It is too soon to be sure about which way the market will definitely go. I will be doing more quick swing trading while the market is making up its mind for the next big trend.

********************************************************************************************************

In 1994, I saw a market bloodbath similar to what we're seeing today.

Just like in 2021, we saw a huge rally in stocks and bonds in 1993. They were up 17% and 34%, respectively.

And then bang… The market just puked all over itself the following year.

Surging inflation spooked the Fed. And they started jawboning the market lower.

It was a nightmare.

In those days, brokers like myself got stock data from a Quotron. It's a machine that displayed up-to-the-second securities prices.

I had several hundred stocks listed on my Quotron. And the screen was just a sea of red.

Amazing companies – from Microsoft to Oracle, Walmart, and Cisco – got slammed. They were down 27%, 30%, 38%, and 53% respectively.

I was 22 at the time, and it felt like the end of the world.

But nearly 30 years later, my market experience has given me some perspective.

I realize what happened from 1994–95 was not the beginning of a secular bear market. Instead, it was a short-term change in market sentiment from positive to negative.

You see, there was no issue with the quality of the companies. There wasn't an issue with the quality of the earnings. It wasn't even a slowdown.

People were afraid the Fed would get too aggressive with raising rates and put us in recession.

Of course, that didn't happen. But market sentiment soured. And we entered a cyclical bear market back then.

In my opinion, that 1-year period was the single-best buying opportunity of the entire decade. It was when the risk was lowest, and the reward was highest.

We weren't headed to a recession… we were on the cusp of massive technological adoption.

The internet took off. And we saw companies like Oracle, Microsoft, and Cisco rise 100%, 2,600%, and 7,788% from 1994–2000.

It was a spectacular run.

So today, I'm giving you the benefit of my three decades of market experience.

From managing money as a broker to running a hedge fund… This has been my world since I was 18.

And I'm telling you… what we're seeing now is 1994 all over again.

Painful? Yes. Difficult? Yes.

But the end of the world? NO.

Those who kept their wits and made the right moves between 1994–1995 were positioned to play a truly epic 5-year rally.

So much wealth was created coming out of that pullback…. it was mind-boggling.

Betting on a short term rally

The market fell hard on the option expiry date on Thursday with some panicky selling towards the end. But I advised my Family members to buy SPY calls along with the market selloff. It appears I'm not the only one thinking about that. See below an analysis that is consistent with what I'm thinking. 

*****************************************************************************

On Thursday, markets sold off, reversing the previous day's gains as April options expiration led to a bout of volatility. The good news is that the market held support at the 50% Fibonacci retracement level even with the selloff. Furthermore, the market is oversold and close to triggering a short-term buy signal.

Given the oversold market condition and the fact the week after "tax day" trends positive as liquidations to pay tax bills complete, the odds for a reflexive rally are encouraging.

However, as we will discuss next, any rally into May is likely a good opportunity to reduce and rebalance portfolio equity risk.

Inflation Could Cause a Recession

Higher prices are not "transitory," as some Fed officials say. They are a result of deep economic problems and signal something dangerous…

An economic slowdown.

More drastically, a potential recession.

Just several days ago, the Bloomberg recession probability forecast jumped from 20% to 25%.

In the happy days of post-pandemic recovery, this indicator hovered around 10%. It has more than doubled since then.

The last time it was at this level was February 2020… and we know what happened next.

But we wouldn't rely on just one indicator to tell us where the economy is headed.

Joe Biden's top economic adviser said the country could face "difficulties" ahead, citing high inflation and supply chain issues.

Bloomberg Economics says that inflation in both the U.S. and the eurozone will likely stay above 8% in the coming months.

In other words, inflation might continue running at 40-year highs.

And this forecast could be conservative.

For instance, Bank of America announced in a note to clients that the "inflation shock" is worsening and a "recession shock is coming."

Even in China, expectations are low. The country's Premier Li Keqiang issued his third warning this week about risks related to economic growth.

All in all, the world is facing a challenging year. As an investor, you should prepare for a possible recession.

Andrey Dashkov

How far can bonds crash down further?

There has been bloodbath for bonds and the US treasurys has seen its worst crash in the history of its index (see below):

No need to question that the sentiment of the bond traders has never been more depressed at the moment. There seems to be no sign of any light at the end of the tunnel. After all, the extremely hawkish Fed these days has made the market believe that it is a certainty that rates will go a lot higher from here and the Fed rate could shoot up towards 3% by the end of the year with each meeting hiking the rate. The inflation trend is also supporting this projection.

But I don't buy it and as I said before, I have a high doubt that the Fed can really raise interest at each meeting this year. In other words, I think the interest rate may likely move down from here. The extremely depressed mood of the bond market is a contrarian indicator, which suggests we are likely seeing the worst of the bonds. If you ask me what to do, I'm betting on a rally of the bonds.  

Negative real interest rate leading to recession.....

What is the real interest rate? Basically it is the federal funds rate controlled by the Fed minus the median Consumer Price Index ("CPI"), a widely used measure of inflation...If the real rate stay in the positive territory, your money has a good buying power. When it turns to negative, then you quickly lose your purchasing power. Or in a lawman's language, your money is losing its value.  

Right now as shown above, we are seeing something truly historical and "unprecedented"... At least since the mid-1980s, when this data began, we've never seen a period of higher inflation and lower interest rates...Lower rates mean the central bank is keeping things "easy" for the economy to grow, which sounds good... unless inflation gets out of hand. That's what we see today...

If you look closely at the chart, you may also notice that when the difference between interest rates and inflation has been increasing (or falling on the chart) at the rate it has been recently, a recession (the grey bar) has often followed...

This is another warning sign. As I said, we are seeing more and more warning signs these days, all pointing towards one direction......recession!

What is the best asset during high inflation era?

In the past week we have heard many rather hawkish comments from Fed officials, who are becoming increasingly alarmed at how inflationary pressures are increasing. As such they are determined to send a message to markets that they will act decisively to keep it in check.  Officials indicated an aggressive path ahead, with rate rises coming at each of the remaining six meetings in 2022. One Fed president has even called to raise the rate to 3% by the end of the year. All the sudden, the Fed that has been behind the curve all the time is now awaken and wants to catch up to stay with the curve. The big question is: can you believe the Fed? Recall what happened in 2018 when the Fed was also trying to do something similar to tight up the liquidity? Then the market just gave the Fed "some color to see see" by crashing down by 20%. The Fed quickly reversed the course to bring up the market again. This time, not only the market but also the heavily debt-bound government will give the Fed some color to see see if they dare to raise the interest rate at such a fast pace! I highly doubt the Fed has the gut to seriously raise the rate as projected. Likely they are just doing lip service to show they are serious in controlling the high inflation.

Regardless of what the Fed may do, the high inflation will stay and probably go further up. In the high inflation era, what asset will perform the best? I bet most people have no idea. See below. Yes, not gold that most people would think about for hedging against inflation. It is farmland that has appreciated at an annual rate over 10% in the past 20 years! 

High probability of recession

I have seen many indicators flashing the warning sign of an upcoming recession. I will share them here as I see them. Here is one from the oil indicator. Of course, keep in mind, it does not mean a recession is imminent and will happen overnight but it often means it is around the corner, waiting to strike, especially when multiple warning signs come up together. Be cautious!  

Market analyst Jim Bianco, who gives macroeconomic guidance to institutional investors, shared this comment and chart on Twitter the other day... when oil moved higher than $100 per barrel. He said...

Not every recession is led by a 50% rise in crude. But every 50% rise in crude has led to a recession.

Grey bar represents each recession period. 

Is this time different? We hope so... but hope is not a strategy.

It doesn't take a lot of thinking to pinpoint the added expenses that will reverberate through the economy... and eat into corporate growth and the pockets of people on Main Street.

This is why every major oil shock has preceded a recession. They were surprise hits to economic growth.

Twitter future

We all know there is no free speech any more in all the major media in the US. But this could be quickly changed and Twitter may be the first one to be forced to do so. I keep my fingers crossed, thanks to Musk's bold move. See below.... Elon Musk has big plans for Twitter… Elon Musk just became the single largest shareholder of social media giant Twitter. That alone has set financial media ablaze. And this is about something much bigger than just investment gains… Regulatory filings revealed Musk's 9.2% ownership stake on Monday. He carefully accumulated 73,486,938 shares of Twitter (TWTR) in the open market. For context, that's four times the stake owned by Twitter founder Jack Dorsey. It's even larger than institutional giant Vanguard Group's position. As we would expect, the market loved this move. Twitter's share price spiked 26% immediately after the news broke. And as I write, TWTR is now up 31% on the week. This means that Musk has already made over $800 million on his investment. Even so, that's not his primary motivation here. Instead, this appears to be a premeditated move to gain control over Twitter. We can see this in Musk's cryptic tweets from last week: Elon Musk's Tweets Source: Twitter Here we can see that Musk conducted a poll concerning Twitter's support for free speech last month. He even suggested that the results of the poll would have consequences. And as we can see, over 70% of participants – more than 1.4 million people – said that Twitter does not adhere to the principle of free speech. That prompted this: Source: Twitter Here Musk acknowledged that Twitter has failed on the free speech issue, and he asked if we needed a new platform – sparking a lot of speculation about whether Musk would attempt to create his own social media company. But now Musk has revealed his true card: Why start from scratch if you can fix what's already built? Twitter has egregiously censored information and opinions that run counter to the mainstream narrative in recent years. It's even banned prominent individuals from using the platform. That list includes former president Donald Trump, who was a sitting president at the time. That's what this is all about. Musk is an ardent supporter of free speech. He often leans hard into libertarian principles. And he is working to restore free speech to Twitter. He considers it a modern town square – the central location where neighbors gather to share information, opinions, and news. I believe Musk is working to align with a handful of other large investors to gain control of Twitter's board of directors. Control is the key. Even though he can, Musk doesn't need to buy Twitter outright. If he can control the board, he can put a stop to Twitter's overreach and restore free speech to the platform. And sure enough, Twitter announced that Musk will join its board yesterday. That's the first domino to drop. We'll see if Musk can build or bring in a strategic coalition from here. If not, he can always buy the company outright. We may wonder – why would Twitter give Musk a seat at the table given his harsh criticisms? The answer is that board members cannot own more than 14.9% of the company's outstanding shares. Twitter is effectively ensuring that Musk doesn't buy a controlling interest in the company. So this is going to be a thrilling story to follow. I'm excited by this move as it represents some hope for open discourse and an end to the deplatforming of individuals and banning of scientific research.  If we can have at least one of the major social media platforms free of censorship, that would be a huge improvement over how our information is currently manipulated and filtered today. As regular readers know, I am also a big believer in free speech. I'm very happy to see Musk taking a stand here. We need to hold Twitter and "Big Tech" accountable for their transgressions. By Jeff Brown

Caution Remains (by Lance Roberts)

While the short-term technical underpinnings have improved as window dressing ensued, I remain cautious currently for several reasons:

1. The market is GROSSLY overbought in the short-term and must either consolidate at current levels or correct to lower levels to resolve it.
2. Negative trends are still in place, which suggests the current rally, while significant, remains within the context of a reflexive rally.
3. Volume is declining on the rally, suggesting a lack of conviction.
4. The current rally looks similar to the rally in 2008, except the fundamentals are substantially weaker. (i.e., valuations.)

NOTE: We are not saying the market is about to go into a protracted bear market. However, the recent 10%ish rally in the market is similar to what we saw during the 2008 market.

Notably, in early March, we discussed that after two-negative months of returns and the worst start to a year since the "Financial Crisis," it would not be a surprise to see a positive return. As noted in "The Revenant:"

"There is a high probability of an outsized reflexive rally over the next two months due to several factors. While we expect a significant rally from current levels, likely following the Fed's meeting next week, such should get used to reduce risk and rebalance exposures accordingly. 

• Extreme negative sentiment
• Bearish portfolio positioning
• Higher levels of cash holdings by fund managers
• Dumb money is bearish
• Put/Call ratios are offside
• The number of stocks trading at 52-week lows.

While the reflexive rally was likely, whether or not it turned into a sustainable "bull market" trend depends on whether recessionary factors persist.

With the yield curve rapidly inverting, the risk of a recession is certainly more elevated than it was a month ago.