Stocks are in a rare sweet spot. Interest rates remain low… the Fed has their back… with ~$2.0T in fiscal stimulus on the way. But is their a fly in the “record rally” ointment? Interest rates are rising… but are they a threat?
For approx one week – this tiny “bricks and mortar” gaming retailer dominated just about every financial headline…
And it’s easy to understand why…
When a stock price goes from $20 to a high of $482 in a couple of weeks… people are going to take notice..
The thing: what goes straight up … inevitably comes straight down.
All things GameStop aside – it was a wild week on Wall Street.
Markets saw their biggest weekly fall (4%) since last October… with the “fear index” surging almost 50%
Technical traders will be closely watching the 10-week moving average this week – as a break often means more selling ahead. More on that in a moment…
A little known $1B brick and mortar retailer known as “GameStop” is dominating every financial news headline…
And for good reason… the retail trader is taking on Wall Street at their own game… and winning (for now).
Hedge Fund “Melvin Capital” is reported to have lost ~ $7B as a result of retail traders forcing the firm to cut their losses… and it could be just the beginning.
You could do far worse than listen to Charlie Munger….
For those less familiar, he is Warren Buffett’s right-hand man. Here’s what he said this week:
“the most dramatic thing that’s almost ever happened in the entire world history of finance.”
November and December have been filled with investor optimism.
News of vaccine and fiscal relief have propelled the market to new highs.
It’s clear skies ahead (apparently)…
And whilst this may prove true – things appear extended in the near-term.
Put another way – it feels like there is a lot of “pull forward”.
Dow Theory posits that the stock market is on the upswing when the Dow transportation average and the Dow industrial average make new highs, either at the same time or shortly after one another.
It is predicated on the idea that in an economy, transports deliver what industrial companies produce, and so one index will move in tandem with the other…
Investors were given a reminder this week on just where the consumer is. Retail sales dropped 1.1% last month, with receipts declining almost across the board. Data for October was revised down to show sales slipping 0.1% instead of rising 0.3%…
Core PCE Inflation at 2.0% to 2.50% is something that Fed aggressively targets. However, for a decade it’s been stubbornly below its objective. And until we see this target level be achieved (and sustained for a period) – I see no reason why the Fed is about to tighten or withdraw its support.
This posts makes the case for gold. If I’m correct (and I may not be) – we will see massive fiscal deficits from government enabled by Federal Reserve bank money creation as a result of the long-term damage inflicted. And that’s a bullish scenario for gold…
