Nothing out of ordinary

As Sam Ro noted for Yahoo Finance yesterday, this is a fairly average year. To wit:

"It's been an incredibly unpleasant year for stock market investors.

After setting a record closing high of 4,796 on January 3, the S&P 500 tumbled 13% to 4,170 on March 8. It then rallied to 4,631 on March 29, but then fell again hitting a closing low of 4,146 on Thursday, reflecting a max drawdown (i.e. the biggest intra-year sell-off) of 14%.

However, this year's moves are nothing out of the ordinary. Since 1950, the S&P has seen an average annual max drawdown of 14%."

He quoted RBC Capital Markets on how markets reacted during four recent growth scares. RBC noted that the six-month returns ranged from 18.2% and 28.6% following market troughs. The 12-month returns ranged from 26.6% to 32.0%.

While it is easy to find a lot of reasons to be bearish, these data points help retain perspective and combat confirmation bias.

However, for now, the stock market rollercoaster continues.

- Lance Roberts

Wandering in the blood.....

Blood, Blood, Blood.....

Wherever you go these days, you are submerged into a fresh bloody river flooding down! You are also bombarded by the headlines like " 美股狂杀千点爆了 专家曝"致命原因"警告". Scary, right? Yes, but I see more and more opps right now. Remember Warren Buffett's famous maxim?  "Be fearful when others are greedy and greedy when others are fearful". I'm just trying to do that🤗

While investors have been whipped into a frenzy about how devastating a half-point rate hike is going to be for stocks... cold hard facts paint a very different picture based on the historical data dated back to the 1950s. During this time, there have been 12 rate hike cycles, in which the S&P averaged an annualized return of 9%...

More importantly, only one of those cycles yielded a negative return.

Don't get me wrong. I'm not saying there is no risk of a recession. Not at all. I think the recession risk is quite high actually and we may be well on the way going into a bear market. Nevertheless, the market rarely follows the herd's opinion and dances with them in sync. Even if a recession or a bear market is coming, it takes time with volatility. There will be up and down along the way. When at an extreme end, a reversal in either direction can be very violent and powerful, even in a "rip you face off" fashion, just like what we saw on Wed. Right now, I'm betting on another explosive dead cat bounce in the very near future, probably within days. 

Boost your 401K with Bitcoin

I love Bitcoin as you all know and I have bought GBTC in my IRA accounts. Now the very bullish news just broke out for Bitcoin, which should have a fundamentally strong long term wealth building effect for Americans. Actually I have thought about an idea for quite some time that Bitcoin may be one of the few only options available that may help solve the pension deficit crisis. Fidelity's move may be in a way to prove that!  

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We'll wrap up today with a huge development from Fidelity. The brokerage giant just announced that it will allow investors to buy Bitcoin in their 401(k) retirement accounts. I can't overstate how big of a deal this is.

As we discussed last week, Fidelity is the largest traditional stock brokerage in terms of total accounts. In fact, Fidelity boasts 33.2 million client accounts.

So this announcement will put Bitcoin in front of millions of investors who may not have considered it before.

To be clear, it's just an option. Investors don't have to buy Bitcoin in their 401(k) if they don't want to. But to me, holding Bitcoin inside of a tax-advantaged account is a great way to go.

Perhaps it's no surprise that Fidelity's rollout will start with MicroStrategy.

MicroStrategy is an information technology (IT) company. But its chief executive officer (CEO), Michael Saylor, got the Bitcoin bug a few years ago and moved $425 million of the company's cash reserves into Bitcoin.

Saylor has since borrowed against the company's assets to invest even more heavily into Bitcoin. As I write, MicroStrategy owns 129,218 bitcoins. That's worth just over $5 billion today.

So Fidelity is starting with MicroStrategy's 401(k) services. And by summer, Bitcoin will be available to all of Fidelity's clients worldwide.

This is wildly bullish for Bitcoin.

The Fed can't raise rates

"The Fed can't raise rates." Piepenburg reasserts:

They simply can't. Because Volcker was in 1980 looking at 900 billion in national debt. Well, by 2022, we have 30 trillion in national debt. We can't raise rates. The fed will say they will. So they'll have something to cut when the markets crash. The reason the Fed is puffing their chest right now, folks, is because they know the market's going to crash. 

They want to raise rates 25 bits here and there. So they have anything, something to cut when there's the next crash. And the crash is coming probably sooner than later. I can't time it. No one can. But you want to be ahead of that curve by not being loaded up in credits and equities that are correlated, they're going to tank together." [emphasis is added]

The Fed, as we'll come to see, has already made a policy choice. It favors inflation over recession. And the immediate response from the spigot-suckers on Wall Street, yesterday, was "yay!" 

Today, the trepidation. Too bad, suckers.

We all have to suffer at the hands of bad policy. Still we believe the market will out… buy gold, real estate, commodities… take care of your family.

Addison Wiggin

More pain ahead in this sector.....

I borrowed the chart for today's blog.

XLF, the ETF for the financial sector, is presenting a classic textbook bearish head and shoulders pattern that completed last week 

on April 26. This pattern often leads the stock down towards its next major support. At the moment, the obvious support is around $31ish as shown in the red line, which

 is an important level for XLF. It represents a major top from which prices broke down in February 2020. 

Markets have long memories. It's common for them to re-test past important levels like this one. So, I wouldn't be surprised if we test this level over the next week or two. 

However, it is very important: it doesn't mean the decline must go down immediately as a straight line. Actually I think there is a good chance XLF will go up first to kiss its neckline as the resistance. If so, likely it will fail to break out and then head back down to test its support. 

Enjoy the fireworks!

I posted the above note to DW Family yesterday and today we got what we wanted: The beautiful firework!

ENJOY IT

“The Fed’s last experiment in tightening failed with a 20% stock market crash in the fourth quarter of 2018"

Jim Rickards reminds us.

"When the Fed started QT in late 2017, they urged market participants to ignore it. They said the QT plan was on autopilot, the Fed was not going to use it as an instrument of policy and that it would 'run on background' just like a computer program that's open but not in use at the moment.

"It's fine for the Fed to say that, but markets had another view. Analysts estimate that QT is the equivalent of two–four rate hikes per year over and above the explicit rate hikes.

"Not surprisingly, we had the Christmas Eve Massacre in December 2018, and Fed chair Jerome Powell was forced to begin easing policy again.

"The Fed quickly backed off and began cutting rates and printing money (through QE) in 2019 and early 2020.

I think this is the likely scenario of how this saga ends. But I don't believe it will be anything imminent. For tomorrow, I think it is more likely we will see some sort of fireworks following Powell's news conference after 2 pm. This is what my crystal ball tells me😜😇