As I have been maintaining all along, the Net Zero fantasy is the pin the stock market bubble has been looking for. Shares fell very hard on Friday and with huge rises in energy bills looming, economies are on the brink of severe implosions. The Law of Unintended Consequences is alive and well!
Yes, the road to hell is paved with good intentions. And in ‘saving the planet’, the puritanical eco warriors in their religious zeal are about to assign to hell a great many people’s way of life – and freeze some to death. All in the name of an erroneous belief that CO2 is harmful. This trace gas is essential for plant growth -we need more of it, not less.
Some cynics believe this ‘save the planet’ movement is in reality a cover for more sinister aims for a world government – a long-held dream for some.
Many blame Putin’s war for the high energy prices. Not so – it was just the icing on the cake that had been baked in 2020 when NatGas prices were on the floor. The lows were made early that year at the bottom of the Corona Crash when energy demand had fallen off a cliff (remember crude oil traded negative as producers couldn’t give the stuff away?).
When Putin’s war kicked off in February, energy prices were already advancing strongly.
So when economies emerged from lockdowns, demand zoomed up but since the puritan governments discouraged fossil, the supply wasn’t there. I may have been one of the early birds to spot that bullish opportunity for Club members in the summer of 2020.
And now with falling stock markets, wealth is being destroyed – and the pensions of many will be decimated.
And to back that pin up, there is another one in the shape of the Fed which is following the market and raising interest rates. Consumer rates are following with mortgage rates zooming higher. Latest US 30-yr rates are close to 6% (up from around 2%). And finally, the housing market is taking note with volumes slashed and the first signs of falling prices appearing. China is already in a real estate melt-down with much wealth being destroyed there. They are even pulling down tower blocks to reduce the available supply!
In this deeply negative environment, consumer confidence has plummeted as many see a real cost of living crisis looming. Fear stalks the markets.
But there are many money managers who see sunny uplands ahead. They believe the Fed will be forced to ‘pivot’ away from its hawkish stance as it sees a recession loom. They will be forced to abandon the planned QT asset (bond) sales starting next month and perhaps even re-introduce QE asset buying if stocks plunge hard enough.
They still believe they hold the Fed Put – but is it still real? One of the oldest market maxims is Don’t Fight the Fed. If that still holds true, the bulls had better start laying down the gloves and throwing in the towel.
And if its long-standing mandate to shoot for a 2% inflation rate has any meaning, the Fed will be forced to keep up the pressure for higher rates. About the only way out for them is if energy prices suddenly take a deep dive (and likewise food prices). This is unlikely as OPEC has resumed its leading role as swing oil producers and the Russian sanctions appear to be hardening if anything.
The Dow rally off the 17 June low retraced an exact Fib 50% to last Wednesday’s 34,300 high and since then has dropped over 2,000 pts. With the strong downside breadth yesterday post-Jackson Hole, I have high confidence we have started the major wave 3 of 3 down. These are the targets I showed last time
Here is the daily chart showing my wave labels
And in fact, last week’s pop up was a small scale second wave to Friday’s to just prior to the Fed. Friday’s 1,000 pt plunge on very high advance/decline ratios is a clear indication that wave 3 of 3 is now underway.
To confirm, I need to see more hard down days next week (with a possible gap lower Monday morning?) If so, that would really elevate my confidence levels for a rapid descent to my first target at the 31,400 region.
And if confirmed, my targets in the monthly chart would come even more into focus.
With asset markets under severe downward pressure thanks to rising rates, Gold followed shares Friday but I believe is close to a large reversal
The market is in a wave 2 dip and will either turn from near current Fib 62% levels or from a dip to the Fib 76% around $1710 (currently $1740).
Interestingly, the DSI bullish reading on Silver dropped to a lowly 11 last week with that on Gold almost matching. Thus, the PMs are both near suitable places to expect reversals.
So far, the growing mayhem in financial markets has not yet translated into a sharp increase in demand for the PMs – but that could change. And if it does, the reversal in demand could be violent.
And what about the ags? Since the opening of the shipping lanes out of Ukraine for grain, the MSM writers have been eerily silent as many took the view that with supply heading to markets, the upward price pressures were easing. And they were – Wheat is off a whopping 45% since the March high.
But this has set up a very juicy opportunity for us. I expect final Northern Hemisphere crops to come in under expected because of the severe droughts especially affecting Wheat.
The six week congestion zone at the Fib 62% support is a classic base for a violent move up out of it. Given the mom div to the $7.40 low, I expect to see prices above $9 and then $10 soon.
And I see similar set-ups in Corn, Soybeans and Cotton. This autumn promises to be a very exciting period in many markets which will become more apparent after the US Labor Day. Remember, September is usually a negative month for stocks (and October even more so!).