Dow Jones’ Earnings are at Record Highs Vs the Price of Gold
$DIA, $SPY, $QQQ, $GLD, $SLV
The DJIA is seeing motion, on Wednesday, the day after the mid-term elections it superior by 2.13% from its prior day’s closing worth, it was the 4th day of excessive volatility since early October.
Everybody was comfortable about the good every day achieve. However, I solely famous that days of excessive market volatility (Dow Jones 2% days) are in the essential Bear-market phenomenon, be they unfavorable or constructive, and there have been some after
In any case, the Dow Jones noticed a pleasant bump up from Friday final week, which ended with the Dow Jones at -5.81% in the BEV chart under.
With the Dow Jones closing final week solely -2.25% from its October third final all-time excessive, it’s onerous being short-term Bearish. So I proceed anticipating the venerable Dow Jones to make further new all-time highs earlier than the finish of 2018.
One factor in favor of an advancing Dow Jones is its buying and selling quantity continues to be very excessive, because it has been because it started its present decline in early October. However I attribute this quantity aka demand to synthetic help from the FOMC.
It’s only a reality of life that for a very long time now the “policy makers” have been supporting the inventory market with pseudo-demand for what Wall Road is promoting any time the inventory market is down, and pseudo-supply for the gold and silver markets every time the previous financial metals threaten to interrupt above some predetermined parameter set by their “policy.”
Right here’s an article from ZeroHedge on a J.P. Morgan dealer in the gold market.
This isn’t actually information. Invoice Murphy and Chris Powell from GATA have been reporting on manipulation in the gold and silver markets since the late 1990s. And to be truthful with ZeroHedge, additionally they have been overlaying market manipulation for a very long time. This similar longtime the place the mainstream monetary media has been dismissing things like “conspiracy theories”, the place in reality they’ve been market actuality for a really very long time. However this too shall cross.
Nonetheless it’s good seeing such market intelligence being reported by somebody. All we’d like now’s for the authorities regulators to start prosecuting these regulation breakers for being the criminals they are. The rationale they haven’t finished this thus far is our authorities regulators are in on the rip-off.
Subsequent is the Dow Jones in every day bars; volatility nonetheless hasn’t returned to what it was earlier than the October third prime. Enthusiastic about all the pleasure the inventory market has at a market prime one would anticipate to see massive day by day strikes in the Dow Jones. In reality nevertheless, when you truly look at the knowledge it’s simply the reverse, that advancing markets advance sometimes on low every day volatility as you see from June to October under.
Seeing the day by day volatility for the Dow Jones enormously improve after the October third prime (huge every day bars) is typical of a serious market decline.
I’m not going to argue with success, corresponding to the exceptional market restoration off the October 29th market backside. However seeing this advance occur in giant day by day strikes is some extent to be involved about.
NYSE 52Wk Lows have contracted to double digits since the finish of October (desk under). And two days this week noticed extra 52Wk Highs than Lows. That’s one thing we haven’t seen since September 21st.
If this advance in the Dow Jones is actual, in the weeks to return we should always see 52Wk Highs at the NYSE improve to triple digits as we noticed final January. However for the bulls, seeing NYSE 52Wk Lows contract as they’ve since October 30th is welcomed.
Earnings for the Dow Jones are presently at all-time highs. However how earnings are computed has modified tremendously in previous many years. I’m not an accountant, but when accounting requirements from the 1950’s have been rigorously enforced on as we speak’s company stability sheets, I doubt the earnings for the Dow Jones can be as we see them in the present day.
The 2 plots under are *NOT* listed, however the as revealed knowledge. Over the many years there have been some superb relationships between Foreign money in Circulation (Purple Plot / the quantity of paper dollars in circulation) and the Dow Jones Earnings (Blue Plot).
From 1934 to 1979 (chart insert), a billion dollars of CinC apparently supported a few greenback in earnings for the Dow Jones. To my eyes, I’d say that company earnings for these years have been solely a perform of financial inflation flowing from the Federal Reserve.
After 1979, for the Dow Jones earnings (Blue Plot) to stand up and contact the Purple Plot resulted in a crash in Dow Jones earnings. The final time that occurred was in October 2007, and since April 2014, CinC inflation has decoupled with the Dow Jones earnings. Precisely what the implications of this disconnect will show to be I can’t presently say. However I anticipate in the fullness of time it gained’t show to be a constructive issue for the inventory market.
That is fascinating too.
The Dow Jones noticed a collapse in its earnings from 1930 to 1933; they have been completely worn out and went damaging throughout the Nice Melancholy Crash. They didn’t break above their peak July 1930 degree ($20.22) till January 1949 once they reached $21.52. That’s simply six months brief of twenty years.
That wasn’t the case for the October 2007 to September 2008 collapse, the place for less than the second time Dow Jones earnings went destructive. Publish sub-prime credit score disaster earnings took solely 4 years to utterly get well from their wipeout.
That simply doesn’t appear proper to me.
Perhaps that is simply one other of these unusual market coincidences of the previous 20 years I wish to name the “policy makers finger prints on the market.” Anyway, I anticipate earnings in the present day will finally show to be fragile issues. When Mr Bear comes again and begins to do his factor unhindered by the “policy makers”, I wouldn’t be stunned to see the Dow Jones earnings taking place, hand-in-hand with the Dow Jones itself.
An enormous drawback for company earnings is as we speak’s financial system is carrying an excessive amount of debt. Even when an organization has a squeaky clear stability sheet, you could be positive its clients and distributors don’t.
That plus the debt markets have for many years over paid (bought debt at too low of yield). Look at the chart under plotting the US Nationwide Debt (Blue Plot) with the yield for the US 10yr T-Bond going again to 1962.
It wasn’t simply shopper costs growing at annual double-digit percentages that caused the big will increase in bond yields and rates of interest from 1962 to 1981. With reminiscences of the Nice Melancholy nonetheless vivid in the minds of many, as the US Nationwide Debt approached the one trillion greenback mark, rational individuals from many years in the past requested themselves how is Uncle Sam going to pay again all that cash?
That’s a very good query which is not requested.
However again when it was in the late 1970’s, the markets started demanding double-digit yields from the US Treasury as a default danger premium.
However then we baby-boomers started to dominate the markets, financial system and sure “monetary policy” dictated by the FOMC. Proving we weren’t going to study from the errors of others, we continued over paying for US Treasury debt for the subsequent eighteen trillion dollars in the nationwide debt till yields for the 10yr T-bond declined to an insignificant 1.38% in July 2016.
As we see under, that’s now an issue as rates of interest are now going again up.
This bond seen under was issued with a 5.38% coupon in February 2001. In different phrases a $1000 funding on this bond will return to its proprietor an annual $53.80 cost till February 2031. Bonds are fastened revenue; this specific T-bond won’t ever pay any lower than $53.80 a yr, however then it is going to by no means pay any extra.
The altering yield (Pink Plot) this bond has seen in the previous eighteen years is a perform of what worth (Blue Plot) it was buying and selling at. It yielded 1.48% in July 2016 as a result of the market was prepared to pay $1556.50 for the annual $53.80 it payed to its proprietor.
However July 2016 was a very long time in the past.
At 2 week’s in the past’ shut this bond was yielding three.22%, and at final weeks shut that bond three.07%, as the market was prepared to pay solely $1216.90 for this bond’s fastened payout of $53.80 and now much less, in different phrases, since July 2016 this bond’s valuation has deflated by a whopping 21%.
That’s an unrecoverable loss for anybody who foolishly bought it in July 2016 when its annual return was just one.38%. The identical will probably be stated for anybody who bought this bond this week at three.22% when market forces drives this bond’s yields up over 6%.
How excessive might T- bond yields improve to?
In the fullness of time I anticipate they’ll see double-digits once more for the similar causes they did in the late 1970’s and early 1980’s:
- Pending annual shopper worth will increase of double-digit percentages.
- The debt markets as soon as once more demand a default danger premium as Washington continues spending different individuals’s cash with abandon.
“Market experts” might chuckle at this prediction of mine, however that’s as a result of they’ve confidence in the system that underlies the monetary markets and the financial system rests on strong footings.
However I don’t share that confidence.
What I see is a monetary system that’s principally predatory in nature; a monetary system that advantages a number of at the expense of the many. Such a system can’t keep the confidence it now has perpetually. Rising bond yields and rates of interest signifies the debt markets are slowing coming my method.
Under is a chart plotting the listed values of shopper debt, the nationwide debt, CinC and private revenue with 01 March 1993 =1.00.
Finally all debt is serviced by shoppers.
It’s taxes shoppers paid to the US Treasury that providers the nationwide debt. Firms additionally pay federal revenue taxes, however these burdens are solely handed on to shoppers with greater costs. The identical is true for the operational money owed corporations need to service, these bills are additionally handed on to shoppers. Then there are the money owed taken on by shoppers themselves, they too have to be serviced by private revenue.
I solely have knowledge on the nationwide and shopper debt, however you possibly can nonetheless see the drawback under; the burdens of debt providers as seen in the nationwide and shopper debt is rising quicker than is private revenue.
This can be a state of affairs that may’t proceed ceaselessly, however it might go on longer than you or I consider it will probably. Then the burden of debt service might collapse the monetary system someday subsequent yr or subsequent week.
One factor is for certain, there’s an unknown threshold in the debt markets, a rising bond yield or Fed Funds price when as soon as crossed will end in a panic from the debt market as counterparty default turns into the main focus in the markets. That day gained’t be good for buyers in the inventory market, however will probably be for many who have taken a place in gold and silver bullion in addition to valuable metals miners.
Right here’s a chart plotting the Fed Funds Price and the yield for the US Lengthy Bond. Can they return to the place they have been in 2007 and never have one other credit score disaster? In case you look at the chart above you’ll notice that since 2007 there’s much more debt to be serviced, however not that rather more private revenue to take action.
Subsequent is a BEV chart for gold going again to 1969.
The 1980-1999 bear market took the worth of gold down by 70%. Gold’s present decline from its August 2011 all-time excessive was solely 45% (Field #1) in December 2015. That’s an enormous drop, however nowhere close to the 70% decline gold noticed from 1980 to 1999.
The subsequent decline occurred in December 2016 (Field #2) when gold touched its BEV -40% line. To date field #three has solely declined to -38.29% on the BEV chart on August 15th of this yr.
Watching gold has been like watching paint dry – boring.
Nevertheless it’s necessary to notice that the decline seen in Field #2 failed to interrupt under Field #1, and up to now Field #three has failed to interrupt under Field #2. Additionally it’s been three months since Field #three bottomed, and since then gold has finished completely nothing.
Three months is a very long time for a market to do completely nothing.
A while forward of us, have no idea when however gold will as soon as once more going to be doing one thing, and that one thing is more than likely seeing gold break above its BEV -28% degree that has twice stopped gold’s advance since 2016.
So, savvy buyers will positioned forward of that transfer in the crushed up miners, bullion, and royalty streamers as a result of gold seems low cost in the mild of rising inflation.
By Mark J. Lundeen
Paul Ebeling, Editor
Paul A. Ebeling, polymath, excels in numerous fields of information. Sample Recognition Analyst in Equities, Commodities and Overseas Trade and writer of “The Red Roadmaster’s Technical Report” on the US Main Market Indices™, a extremely regarded, weekly monetary market letter, he’s additionally a thinker, issuing insights on a variety of topics to a following of over 250,000 cohorts. A world viewers of opinion makers, enterprise leaders, and international organizations acknowledges Ebeling as an skilled.