Why a recession is nearly a certainty

There is another powerful indicator that is flashing vigorously for an upcoming downturn of the market.  It is the movement of the U.S. Conference Board's Index of Leading Economic Indicators (LEI). This index includes employment figures, manufacturing order, interest rate spreads, and consumer expectations.

Here is an analysis that I have just seen: 

As you can see in the chart below, the index is now in negative territory on a year-over-year basis.

Over the last 40 years, each drop into negative territory signaled the start of a recession.

The market seems to be ignoring these loud indicators. In fact, per Bloomberg, the probability of a U.S. recession within one year is only 9%. This is likely heavily underestimated.

Once the market awakens to what appears to be an imminent recession, more pain will come.

Will the ugly TALS become more ugly?

TSLA hit a two-year low today. Here's a table of the stock's biggest drawdowns – the current 59% one is basically tied with worst with the one during the COVID crisis:

 

Has TSLA hit the bottom yet? No one knows for sure but TA wise, it seems its bottom is near as it is nearing a major support level around $161. If it breaks through the support, it will become really ugly but if it can hold up and rebound, then the chance may be a bottom will be formed. So watch the level closely!

Are you prepared for a crash this severe?

 We are just seeing a TA setup that may be a precursor to a monumental crash of the stock market. That is: the 9-month EMA finished October below the 20-month EMA. This is a “bearish cross” which should be a big cause for concern in the months ahead. It’s warning of an accelerated decline in the stock market that may be coming to kick off 2023.

Why am I sounding so alarming? Well I'm a student of history, specialised in the stock market history! If we look at the similar setups in the past, we have five examples of this pattern over the past 50 years. In two of the cases, stocks fell 10% after the bearish cross. The other three times, stocks fell 33% thereafter. See the charts below.

Following these examples, a mild decline gives us a target of about 3200 on the S&P 500. A more severe decline brings the index down toward 2400 in the months ahead.

Will we definitely get this kind of crash? Of course not. But at least it is prudent to be cautious at the moment when the risk reward ratio is so much tilted towards the downside, correct?

I was just visiting this well today and was thinking of not falling off the cliff into it. I hope no one would if the upcoming market crash indeed intensifies.

Don't tell me you are not warned!!

Are you prepared for a crash that severe?

We are just seeing a TA setup that may be a precursor to a monumental crash of the stock market. That is: the 9-month EMA finished October below the 20-month EMA. This is a "bearish cross" which should be a big cause for concern in the months ahead. It's warning of an accelerated decline in the stock market that may be coming to kick off 2023.

Why am I sounding so alarming? Well I'm a student of history, specialised in the stock market history!🤓 If we look at the similar setups in the past, we have five examples of this pattern over the past 50 years. In two of the cases, stocks fell 10% after the bearish cross. The other three times, stocks fell 33% thereafter. See the charts below.

Following these examples, a mild decline gives us a target of about 3200 on the S&P 500. A more severe decline brings the index down toward 2400 in the months ahead.

Will we definitely get this kind of crash? Of course not. But at least it is prudent to be cautious at the moment when the risk reward ratio is so much tilted towards the downside, correct?😏🙄

I was just visiting this well today and was thinking of not falling off the cliff into it. I hope no one would if the upcoming market crash indeed intensifies.

Don't tell me you are not warned!!

The Case of the Missing Red Wave

Is "the Steal" On in Last Week's Election? Jim Rickards Nearly a week after the midterm elections, many races remain undecided. Election Day has turned into election month under the new system of early voting and mail-in voting that became institutionalized during the 2020 presidential election, when COVID changed the way elections were held. What do we know as of today? It's clear that a "red wave" that would have resulted in massive electoral victories for Republicans didn't materialize. The Democrats will hold the Senate since they won key races in Arizona and Nevada. Next month's runoff election in Georgia is now much less significant because even if the Republican candidate Herschel Walker wins, it won't shift the balance of power in the Senate. The Democrats remain in control. Meanwhile, instead of taking a 25- or 30-seat majority in the House, Republicans will be lucky if they win a four- or five-seat majority. Right now, it looks like Republicans will hang on to win control of the House, but that's not guaranteed as ballots are still being counted in key races. And the longer the ballot-counting process drags out, the more it favors Democrats. Why Today's Voting System Favors Democrats The new voting system favors Democrats for a number of reasons. Many people believe it's because Democrats are committing widespread fraud to win elections. While fraud may play a role in some cases, a far less sinister explanation is often more likely. Democrats have simply taken advantage of the rules governing how elections are being held in many states, while Republicans haven't. Democrats simply have a better "ground game." They encourage their voters to vote early with mail-in ballots. They can then run targeted campaigns directed toward certain voters to get them to turn out on Election Day itself. Evidence indicates that Democrat ad campaigns that painted Republicans as extremists who would throw women in prison for having abortions and who were a threat to democracy itself created high Election Day turnout. Unmarried women and young "Gen Z" voters seem to have voted in unusually high numbers. The net result is that Democrats got a large proportion of their voters to vote this election cycle, including the marginal voter who might not normally turn out on Election Day itself.

Republicans Are Playing by the Old Rules Republicans, on the other hand, discourage early voting and encourage their voters to turn out on Election Day proper. But there's always going to be a percentage of voters who don't make it out on Election Day, for a variety of reasons. And even if same-day voter turnout is high, as it was in Maricopa County in Arizona, that may reduce actual votes because many people aren't prepared to wait two hours in line to vote. They have to get back to work, pick up their kids from school, etc. Throw in "glitches" with machines that produce Election Day chaos, which also happened in Maricopa County, and you might have tens of thousands of voters who intended to vote on Election Day, but never did. Voters in Maricopa were told the machines weren't working or that the printers ran out of paper, etc., and that they had to go vote somewhere else. Around 20% of the polling stations in Maricopa County suffered glitches. Did Democrats and anti-MAGA Republicans intentionally try to create these sorts of disruptions in order to suppress same-day voting, which leans heavily toward Republicans? Or were these types of disruptions just a coincidence? I leave that for you to decide for yourself. I can't say definitively myself. Intentional or Unintentional Chaos? But gubernatorial candidate Kari Lake and senatorial candidate candidate Blake Masters were both endorsed by Trump. Both Democrats and anti-Trump Republicans had an interest in seeing them both lose. Both depended heavily on same-day voter turnout. Masters has already lost and Lake is in serious trouble. Did same-day voter suppression, intentional or unintentional, cost them their elections? We don't have all the answers yet, but it's possible. Either way, it's clear that Democrats have rigged the system in their favor in many states, and are taking advantage of the new rules to swing elections their way. It's not fraud, although again, fraud is likely involved in some cases. It's mostly changing the rules in your favor and taking advantage of them to maximize your vote. In other words, it's good old-fashioned hardball politics. There are other problems with early voting and mail-in ballots that do invite outright illegality and fraud, which clearly need to be addressed. But that's for another day. So where do things stand today, assuming the Republicans manage to win control of the House? Biden's Most Powerful Weapon: Executive Orders One of the points I made in my pre-election analysis is that it didn't really matter which party won from a policy perspective because so many of Biden's policies were already in stone and beyond the ability of any Congress to change in the short run. New legislation, if there were any, could be vetoed. If we end up with the House controlled by Republicans and the Senate controlled by Democrats (the likely outcome), there might not be any legislation at all because of partisanship and an inability to compromise. More to the point, Biden could rule by executive order and bureaucratic inertia and not need the Congress at all. In other words, the composition of Congress may not matter that much. And given Biden's use of executive orders to limit energy production, for example, that's disconcerting. Six More Years? Biden is dropping hints that he's running for reelection as president in 2024. This is not the first time that Biden has dropped such hints, but these are the most explicit. He seems to think that the failure of the red wave to materialize represents an endorsement of his policies. It doesn't. I'd remind him that for House races nationwide, Republicans got about 7 million more votes than Democrats. That doesn't seem like a very strong endorsement to me. We can expect a formal announcement from Biden early next year. For the record, Biden will turn 80 years old next week. If he somehow wins in 2024, he'll be 82 years old when he's sworn in for a second term in January 2025. He'd be 86 years old if he completes a second term in 2029. All three of those benchmarks are records for a U.S. president. Is Biden up for another term? Clearly not. Two Bad Outcomes Biden exhibits signs of dementia almost daily. Dementia is a progressive condition, highly correlated with age, and irreversible with current medical treatments. Biden is already unfit for the presidency. His likely condition in 2029 will be unimaginably worse. Then there's the simple matter of longevity. The last president to die in office was John F. Kennedy in 1963. It's not an eventuality the U.S. has faced in almost 60 years, and shines a harsh light on Kamala Harris who is not old but is not especially bright. Still, we are heading down the path of having a senile octogenarian president who may die in office and be succeeded by an incompetent hack in a dangerous world. As an investor, are you ready for that?

It is history that Fed has screwed up everything

"The only thing that is certain is that the Fed will screw it all up. They always do. I think only Volcker got it right and we had to have a deep recession to cure inflation.

"Greenspan let leverage go too far in the '90s and kept rates to low in the aughts, then raised rates too much. That first fed the real estate bubble (along with liars loans and all that), then the skyrocketing rates and bad regulation broke the market and got us the great recession.

"Bernanke kept rates too low and monetized the debt with QE. Yellen is a certified idiot, both at the Fed and Treasury. Powell wanted a little inflation, got it, then got a lot more, and called it all transitory. Now he has to put the hammer down to show he's learned his lesson.

"They are making it up as they go along. All their PhDs, money center experience and globalist views keep bringing us disasters. This will not end well."

This is how people think about the FED!

At the moment, people are collectively thinking that the Fed will do the "right" thing at the next meeting in Dec with the cooling CPI/inflation. So the market is shooting up. Here is what I shared early this morning:

SPX indeed has touched 4000 during the day and here is the chart after closing today:

SPX is basically in a mini uptrend within a gigantic downtrend. Technically it can easily move further up to challenge its next strong resistance around 4100ish. But it can also easily back down now towards 3800ish. Either way, I think its upside room at the moment is quite limited and will most likely come down soon, if not immediately to set up a base for its final bullish run for the year end: the Santa Claus rally, if we are going to have one. 

So my advice is clear: chasing/FOMO from here is dangerous!😨

Something big may be brewing...

As I told my Family, we may be going into a very uncertain period and I offered a low risk play with it.

While our midterm play is working well as planned, I'm thinking there may be something big brewing that may trigger a big jump of volatility.

So I also want to be prepared with it.So far so good!

 

The surging of oil will continue.....

Why will oil surge again for the foreseeable future....

This was the blog I posted on Sep 23 when oil hit below $80. Well, my timing was nearly perfect as oil bottomed just one trading day later on Sep 26 and then started to move up. Now it is over $90 with over 10% hike in less than 2 months. But I think it has a lot more to go. Below is a list of what has composed of the clear evidence for the ongoing energy crisis. 

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By Jeff Brown

This is a timely topic because aside from it being mid-term election week in the U.S., it's also the week of COP27. Every year, the United Nations hold this climate change conference. And it's proven to be one of the most ineffective and hypocritical events of the year.

I remember last year's event quite well. The outcome of which was the major announcement to transition completely away from coal, signed by 40 nations.

I used the word "hypocritical" before because the exact nations that one would think should be leading by example – the U.S. included – are doing exactly the opposite.

Each of the points below stand in stark contrast to the goals of COP26:

• In the last two years, the U.S. has increased its coal usage for electricity production to 25%. This is the result of economic policy that reduced natural gas production for the purpose of electricity production.

• To power its electricity needs, Germany is now tearing down a wind farm so that it can make space for an open-pit mine to dig up coal. (Smart clean energy plan: Remove wind power and increase coal mining and the burning of coal for electricity…)

  This is the direct result of German energy policy designed to shut down all nuclear fission power plants and ultimately rely on all "renewable" energy. In the end, Germany became almost entirely dependent on Russia's natural gas… and we all know how well that went.

• Japan radically ramped up its use of coal after the Fukushima nuclear meltdowns. I was living in Tokyo at the time and lived through the energy crisis.

  Japan shut down all of its nuclear power plants and initially turned to natural gas, but then quickly started building coal power plants. Coal is far less expensive than natural gas, which was causing problems for Japan's trade surplus. Japan continues to use coal to power 32% of its energy needs.

• But what's happening in much of the rest of Europe is arguably worse. In an effort to "virtue signal" and appear to be "sustainable" and "clean" by not using coal, European countries have turned to wood pellets to generate electricity.

  Now, it's true that wood pellets aren't coal, but I would argue they're much worse. Old, protected forests in Eastern Europe and even the U.K. are being decimated in order to harvest the raw materials necessary to create these wood pellets.

  To highlight the insanity even further, fossil fuels power the equipment and manufacturing plants that produce these wood pellets, which are then used to generate electricity across Europe. 

  The E.U. uses wood pellets more than any other region in the world. And the worst part? Wood pellets burn even dirtier than coal! Yet wood is considered "sustainable" and "renewable" because trees will grow back. But if we cut them all down and burn them… where will that leave us?

I wish I was making this up. But I'm not. And this is just a short list of the absurd policies that are taking place in developed countries.

Layoffs everywhere....How We Are Trading It

"The Fed's "no pivot" policy stance continues to drive the markets short-term. Investors remain at the mercy of volatile markets with little direction on where capital can find safety. Gold has not hedged inflation. Bonds have not hedged risk, and equities remain under continuous pressure.

The setup remains more bearish than bullish now that the recent advance appears complete. As such, we have further reduced our equity holdings, increased our cash levels, and remain underweight fixed income. As discussed previously, there is a developing opportunity to own long-dated Treasury bonds, but you will need to give that thesis time to play out into 2023."

Lance Roberts

Out of control!

 

Well, as I said yesterday that the market would likely mount a good rally soon, we did see a strong rebound today. 

For anyone who dared to buy the dips yesterday, it is a very good overnight gain 

 

Is the market positioning itself for the upcoming red wave? I think so. Here is the thing, there is an overwhelming trend to support the red wave to take over the DC! If you don’t want to consider Russian analysis, how about a recent poll by no less than CBS News, totally mainstream establishment if there ever was such a thing. CBS calculates that 79% of Americans believe that the country is “out of control.”

CBS News Poll @CBSNewsPoll

Out of control: Heading into the final week before election day, 8 in10 voters describe things in the country today as “out of control,” as opposed to “under control.” cbsn.ws/3sJiusr

1:33 PM ∙ Oct 30, 2022

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Here is today's political betting status, predicting an overwhelming win for the GOP, a truly red wave is coming!

 

 

 

 

 

But as I have said, considering the moral-less Dems that will likely do it again with cheating, we have to wait and see what will actually happen on Nov 8. The Alzheimer Fake President Biden has already hinted that we may not know the result immediately on Nov 8. In other words, he is implying that they may manipulate the result again just as they did in 2018, if necessary.

Let's closely watch out together. For the sake of the country, please vote out Demes!! 

The Worst Fed Day!

Trying to predict the market's reaction to a Fed announcement is risky, especially when we're down in the market rabbit hole when good news is bad news, and vice versa.

Here is how the market reacted to the Fed decision: a very positive response followed by a deadly deep dive to close the worst Fed Day!

For anyone simply betting on a bullish reaction, it was a heart-breaking day! I knew it would be foolish to bet only on one direction. So we bet on either direction and luckily a good reward bet! 😜

So now what? Well I think there is a good chance we will see a more deep dive for the market in the weeks ahead towards 3500ish, which may set up a nice bottom for a year end Santa Claus rally. But for the next few days, I think we may see a good oversold bounce. While the market had quite bad plunges for two days, the volatility was not shooting up at all. Instead, VIX was also coming down with the market. This is really weird and such kind of divergency usually leads to a market rally, although likely short-lived. Maybe the market is predicting a red wave for the midterm election and wants to celebrate it😂 For risk takers, this may be a short term trading opportunity betting on the upside.