Max Pessimism

Today is the last day of September, the most bearish month of a year. And this week is the most bearish week of the month! With the new lows below the last Jun low, we are likely seeing the maximum pessimism at the moment. One indicator is the VIX/VIX3M ratio.

VIX is the volatility index for the next 30 days  and VIX3M is for the next three months, or 90 days. Normally the shorter term VIX has a lower value than the longer term VIX3M, so the VIX/VIX3M should be below 1. But from time to time, when investors are extremely nervous about the near future, they my push VIX higher than VIX3M, causing the ratio above 1.

This tells us that traders have pushed the market toward maximum pessimism. As a contrarian indicator, it suggests a bottom is formed. Below are the corresponding SPX price movies following each time when the ratio was above 1. What will happen this time? Anyone's guess but my money is betting on a bounce, probably a forceful rip-your-face-off type of revenge rally in the days or even weeks ahead. 

A problem of historical scope in the making

The dollar is now at a 20-year high – and it's currently going parabolic.

You can see this by looking at the U.S. Dollar Index below. This is a measure of the value of the U.S. dollar relative to the value of a basket of six major global currencies – the Euro, Swiss Franc, Japanese Yen, Canadian dollar, British pound, and Swedish Krona.

Here's its performance over the past 20 years:

So, we have a historically strong dollar barreling through global economies like a wrecking ball.

How do you think that will impact Q3 earnings season that begins in just a few weeks?

Well, here's FactSet, which is the go-to earnings data analytics company used by the pros:

For Q3 2022, the estimated earnings growth rate for the S&P 500 is 3.2%. If 3.2% is the actual growth rate for the quarter, it will mark the lowest earnings growth rate reported by the index since Q3 2020 (-5.7%).

…Ten sectors are expected to report lower earnings today (compared to June 30) due to downward revisions to EPS estimates.

…Both analysts and companies have been more pessimistic in their earnings expectations for Q3 compared to recent averages.

As a result, estimated earnings for the S&P 500 for the third quarter are lower today compared to expectations at the start of the quarter.

On a year-over-year basis, the index is expected to report its lowest earnings growth since Q3 2020.

The strength of the dollar is a major contributing factor to why these earnings forecasts are coming in lower.

Goldman Sachs estimates that a 10% appreciation in the dollar reduces earnings by companies in the S&P 500 by roughly 2%-3%.

Well, since July 1 (the beginning of Q3), the U.S. Dollar Index has climbed 9.15%.

That's pretty much a 3% earnings haircut right there.

Jeff Remsburg

Full blown bearish: the world is ending?

These days, the market sentiment seems to smell like the world is ending. See below some extreme bearish mood indicators worst seen in history.

As a contrarian, I cannot help but become more and more bullish, not for the long term but for the near term, something like next a couple of weeks or so.

In my mind, a powerful rebound, maybe just a dead-cat bounce, is inevitable! I have been buying like crazy in the past few days😜 

Will see if this buying binge will bring me a good bag of 💰

World’s Worst Economic Forecasters

The 75bps hike on Wednesday was priced into the market. However, the Fed's "Dot Plot," showing no "pivot" in policy anytime soon, sent markets lower. There was a 10-9 majority in favor of hiking above 4.25% this year, suggesting a fourth 75 basis-point increase in November is possible. (Chart courtesy of Zerohege)

As noted by Zerohedge:

"Remember, until Powell's Jackson Hole speech, the Fed discussed a soft landing scenario with the economic projections at the June meeting reflecting that thinking."

Furthermore, the market was also pricing a "pivot" in monetary policy by May of 2023. The problem is that the Fed's new economic projections dashed those hopes, with growth estimates slashed and inflation elevated.

• The Fed substantially revised GDP forecasts lower, with the median estimate for growth this year at just 0.2%.
• Unemployment rate forecasts are up, with the median now at 4.4% for both 2023 and 2024.
• The Fed doesn't see inflation returning to its 2% target until 2025.

The problem is that while these statements clearly show that "no pivot" in policy is coming, they are also likely very wrong.

As we have discussed, the Federal Reserve is the worst economic forecaster ever. We have been tracking the median point of their projections since 2007, and they have yet to be accurate. The table and chart show the Fed is always inherently overly optimistic in its forecasts.

The corner graph shows the sharp drop in economic growth expectations since the July meeting. If they were this wrong just a few months ago, how wrong will they be in 2023?

While the Fed is currently pushing a "no pivot" stance, there is good reason to expect a pivot in 2023.

Lance Roberts

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

 Back in Jun when oil was well above $100, I predicted that oil would plunge into $80s soon:

Oil may be in a big trouble

Well, oil hit $79 today, a quite bearish run since I made the call, isn't it?

But I think oil's good days will come back soon.

There are many fundamental factors involved but I got my first hand experience with one factor last week that made

me believe more so about the tailwind for oil: the badly shaped supply and demand curve!

We just came back from Europe. When we were in Paris, it was still a bit hot and humid with the day time temperature

around 85-90 F. Here is the terrible experience I got: there was no air-condition running in the Paris metro. Initially I was

a bit puzzled why there was no A/C. Then I suddenly realized: to save energy due to the shortage of oil and gas!

Apparently the energy supply shortage in Europe is so severe that has impacted people's day life! As such, I don't think

oil will continue to go down much from here. Rather with the winter is quickly coming, oil and gas will re-surge and oil may 

go back into $100 again! 

 

 Except the unpleasant metro experience in Paris, we had really good time visiting various areas in Central Europe:

We are mostly impressed by the 

 

Cube Houses in Rotterdam of Netherlands.

Here is the inside of a cube house.

Here is another Rotterdam;s impressive Market Place 

Here is the beautiful market place inside scene.

 

 

 

 

 

We also visited historical towns including Netherlands 

Amsterdam

De Haar Castle,

 

 

Fairyland Geithoorn

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Belgium Ghent 

 

and Bruges.

  

Attachments area

Preview YouTube video Marketplace Rotterdam Netherland

Buy into the max pain

Today is a great time to buy, a similar moment to the Jun crash which was followed by a 20% rally. Will we see something similar this time? I bet so with my money 💰

Here is what I shared with my Family today:

Time to end the FED?

This is an incredible number to know:

2022 Budget for the Federal Reserve (numbers in millions of $'s)

It costs us, the taxpayers,  $6.246 billion to fund the FED. It is also a mind-boggling number that the Fed employs 24,447 people with almost 400 PhDs working for it. With this kind of money and the top talents, it is not unreasonable to expect the Fed should meet its two mandates:

• Conducting the nation's monetary policy by influencing money and credit conditions in the economy in pursuit of full employment and stable prices

• Maintaining the stability of the financial system and containing systemic risk that may arise in financial markets

Well, in reality, we were told that inflation was "transitory" while the Fed did nothing about it last year. And yet, here we are, implementing monetary policy that is destabilizing markets. And price volatility is out of control. To state the obvious, this is exactly the opposite of the Fed's stated goals. How did nearly 400 PhDs, the Board of Governors, and 11 Reserve Bank Presidents get it so wrong? This colossal mistake has come at not only the detriment of U.S. taxpayers, but also to the world – given the reserve currency status of the U.S. dollar. Maybe it really is time to end the Fed? After all, it seems the Fed is always behind the curve. So why does it need to exist?!

“Biden Bucks” --

UPDATE

Jim Rickards, here…

Another warning shot across the bow just happened…

I told you a few weeks ago about how Joe Biden and the Fed's plan to develop the digital dollar is moving from the research stage to the development stage…

Well, today the Biden administration just released the first-ever framework for developing a U.S. CBDC System. In other words, Biden Bucks is getting closer to becoming a reality for us all. 

To catch you up (if you haven't heard), I believe the US dollar, the standard of the world since 1792 will be REPLACED by a new currency, the digital dollar.

These new electronic currencies are called CBDCs – or "central bank digital currencies".

(But I like to call them "Biden Bucks" because I want him to take full credit for what I consider to be crimes.)

 And these Biden Bucks will have the full backing of the U.S. Federal Reserve.

They will REPLACE the cash ("fiat") dollar we have now…

And soon be the sole, MANDATORY currency of the United States. 

What's this mean for you?

It would make your money less truly your own and under government control.

We are already seeing how many retailers are not accepting cash across America…

What happens when physical cash is ELIMINATED from any payment transactions?

Imagine this…

To further advance his climate change agenda, what if Joe Biden and his cronies decide that gasoline needs to be rationed?

Your Biden Bucks could be made to stop working at the gas pump once you've purchased a certain amount of gasoline in a week!

How's that for control?

Biden Bucks would create new ways for the government to control how much you can buy of an item… or even restrict purchases. It would keep score of every financial decision you make.

In a world of Biden Bucks, the government will even know your physical whereabouts at the point of purchase.

It's a short step from putting you under FBI investigation if you vote for the wrong candidate or give donations to the wrong political party.

If any of this sounds extreme, fantastical, or otherwise far-fetched… well, it's not.

Look at what's happening around the world…

China is already using its CBDC to deny travel and educational opportunities to political dissidents.

Canada seized the bank accounts and crypto accounts of non-violent trucker protestors last winter.

These kinds of "social credit scores" and political suppression will be even easier to conduct when Biden Bucks are completely rolled out in the U.S.

With Biden Bucks, the government will be able to force you to comply with its agenda.

Because if you don't, they could turn off your money.

Scary, isn't it?

But you can fight back…

You need a way to "sidestep" this type of digital dollar and total surveillance state that is coming soon.

A way to protect your freedom and your savings.

That's why the time to prepare is now, before it hits.

California is a large sucking hole….

"Let's get down to brass tacks...

"First, I used to schedule energy to the Pacific Interchange Utilities in the Pacific Northwest and at that time there were 17 of them. I sat across from the person dealing with the market in California. At that time, that state was 3,000 to 5,000 megawatts short to meet there then current load. That was in the mid to late 80s.

"California has gotten on the green bandwagon, and we are already seeing the results, historically impossibly high energy prices in a region, which is now more likely close to 8,000 to 10,000 megawatts shortage. It's fact 'Mother nature always wins, or finds the way to win'... Fires, drought... she especially hates a vacuum.

"California is a large sucking hole going down the tubes faster than a lead weight dropped from 100 feet... If I owned a business in California it would either close, or move, I would never stay there, and thousands of people are figuring that out. They are outlawing gas/diesel vehicles for electric ones or hydrogen-powered ones. There are three ways to extract hydrogen: electrolysis (putting sulfuric acid in water and running a current through it, breaks it down in to oxygen and hydrogen) that by the way costs more than oil/natural gas drilling and distribution, and the other ways are related to the processing of natural gas, again a hated fossil fuel.

"Second, that is only going to put a burden on other places, especially Democratic run places... The green bandwagon is a unreachable pipe dream, which will doom those places and ultimately the whole world to massive riots, and civil insurrections across the planet.

"Keep this in mind, rich people do not riot, pillage, or complain. They are rioted, pillaged, and complained against. The rich make up maybe 15% of the whole world... Statistics show that less than 3% of a population cause revolutions. If 50% of Europe is freezing, and the economy is in the toilet, you are going to see widespread riots, revolutions, and serious disruptions across the globe.

"You forgot one important thing in your 'resource stack' report... hydro. Many places have hydro generation installed. It's a renewable resource when it snows or rains regularly. FWIW, the second largest installed generation dam in this world is in the USA, it is Grand Coulee Dam in the state of Washington. It has approximately 7,000 MW of generation installed." – Monty B.

Powell dared not to ruin the party again!

 This was the message I sent to the DW Family early Thu prior to the opening.

 

And the day before on Wed: 

 

 

Following Powell's speech yesterday, the market had indeed shaken out any fear at the beginning and closed up nicely at the end.

 

Today we saw a nice follow-through with 3 days of straight rally. I still believe more up days are in the cards. If this is a strong relief bounce, we may very well see another 100-200 points of gain from here for SPX. But as I said repeatedly, this is a dead cat bounce that is doomed to be short-lived. We may see another quick mood swing from extreme depression to euphoria in a very short term but be prepared for another major leg down in the weeks ahead! I will try my best to provide precautionary early warning to my DW Family when I see such signs popping up. 

For now, we are enjoying the rally

Institutions are scared (by Sentimentrader)

Institutions are scrambling for protection

In February 2021, small speculators were going bananas. At the time, we showed what was perhaps the most remarkable chart that we'd seen in our entire careers. Until now... This time, it's not small options traders that have panicked. And it's not FOMO that's causing it. Rather, it's the largest traders in the market, and they're buying protection against a crash at a pace unlike anything the market has ever seen. Last week, traders of fifty or more contracts bought to open nearly five million put options. More importantly, they spent a whopping $8.1 billion on those contracts. That is almost double the amount of any other week in 22 years. With options trading, it's essential to consider both sides. Sometimes, when there is a spike in put buying, it's because overall volume is higher, and there is a coincident spike in call buying. So, we prefer to net them out, which is what the chart below shows. It reflects the net dollar value of premiums that institutional traders spent on buying calls to open minus buying puts to open. The lower the blue line, the more they spent on puts. As we can see from the chart, it has plunged to a record, far beyond anything we've seen in 22 years. So, why hasn't the VIX "fear gauge" spiked along with this scramble for puts? It could be due to a number of factors, like traders buying puts on stocks not included in the S&P 500. Or buying options with longer expiration dates. Whatever the explanations, the data is clear - institutional traders are in a mad scramble for protection.

What the research tells us...

The largest options traders spent a record amount on put options last week. Their total hedging activity is far beyond anything seen in 22 years. Short-term, that may be a concern, but long-term, it should be a bullish factor. Large speculators are also heavily shorting index futures.

A startled bird （惊弓之鸟)

This was the note I sent to my Family yesterday. 

I was expecting a strong relief rally starting today following the not so good jobs report (a day that bad news is good news). 

Well, the market indeed opened strongly and went up over 50 points for a good part of the day until later afternoon. Suddenly it went sour 

by coming down in a hurry. I don't know what has caused this sudden turnaround but I guess maybe just the market is like a scared bird that 

has been beaten up too much lately and it cannot hold up any good moves over the long weekend. It is really an unfortunate day, especially

for those who chased the market during the day. 

Having said that, I don't think it is all that bearish. TA wise, actually it may be setting up even a strong base for the inevitable relief rally. After all,

it is nearly a perfect storm setup for such a rebound. Below is the hourly chart for SPX, which has shown a beautiful positive divergence even with

today's bad closing. 

I was a bit aggressive in trading SPX/SPY for its rebound and took quite a few good profits during the day:

And I reopened a few long positions again for SPX for next week and two during the harsh selloff near the end of the day. I'm confident a strong rebound 

will be coming again and probably soon!

Dollar's good day is ending

US$ has enjoyed a great up run this year but I think its good days are ending soon, if not immediately.

The chart below presents beautifully the seasonal windows for weakening dollar, which for some reasons is often around the end of the year in the past 20 years.

Apart from the technical side, fundamentally there is a strong catalyst for Euro to catch up against the dollar: ECB will aggressively hike their interest rates moving forward. 

As such I think the next major trend for the dollar will be down, a lot probably!