A stopped clock is eventually right

December 14, 20223 Comments

A few things to talk about today. Debt, inflation, gold, Fed policy, a current look at the technical conditions on the S&P 500. Lets get at it.

First, a word from US Federal Chair, Janis Yellen:

A Stopped Clock is Eventually Right…

May 2021: Yellen sees inflation being lower by the second half of 2021….WRONG!

November 2021: OK–now Yellen sees inflation will subside by the second half of 2022….WRONG!

November 2022: Um, OK – now Yellen sees inflation will be much lower by the END of 2023. Third time’s a charm? But…probably not as low as she thinks!

Advice from an unreliable advisor…

A recession isn’t necessary to bring down inflation” – Janet Yellen, Fall 2022

My take: Therefore, a recession is absolutely essential to bring down inflation!

Please note – yesterday I recorded an amazing interview surrounding the economic outlook and implications with a super special guest. I can’t tell you who it is, or I’d have to shoot you (although I don’t have a gun- Justin has them all).  Announcement of this “Smart Money/Dumb Money” video interview coming soon!!! My guest would strongly disagree with Ms. Yellen.

Hard not to with her track record! Stay tuned!

Market analysts consensus – another unreliable advisor…

2021 SPX target Actual: 4750
Estimate: 4090

2022 SPX target Actual: 3990*(13 days left)
Estimate: 5300

*Factset data, 2022 outlook,

13 trading days left–Do you think the market will pop 1000 points in the next 2 weeks??? If so, I have some snake oil for sale.

Newest projection for 2023…do you believe that this time they’ll be right?

Wall Street Research Outlook for the S&P 500 estimates for 2023 – only modestly lower than actual earnings for 2021, and much higher than actual earnings for any year prior to 2021. That makes little sense. Just sayin’….

 

Why buy gold?

On Monday I presented the technical argument behind my bullish gold view. Beyond the technical side, here’s another argument: See the chart below – this is the fastest ramp-up in interest payments on the US debt load – ever. In my view, this will lead to inevitable money printing down the line – circular printing more debt to pay interest.  I also suspect it speaks to upside for gold – see my last blog on that subject. A breakout from the cup & handle formation might be triggered by such a ramp up in interest payments, and subsequent money printing.

 

 

For Canada – I couldn’t find a Canadian debt interest payment chart, but here’s a report from Fraser Institute on our Fed debt. My guest in the interview yesterday gives the figure – but for now, you can extrapolate the rising rates and parabolic debt surge and figure that Canada will follow. Expect the same trajectory as is noted for the US, above.

Fed Moving to 3% Inflation Target?

I’ve long stated on this blog that we can expect the Fed and the BOC to accept a higher inflation target than their fantasy 2% CPI. Well….here we go…

“@ojblanchard1 and @paulkrugman have argued for shifting a 3% inflation target. I’m also for a 3% target, or a range that includes 3%, if we can make the shift in the right way, which I’m not sure about.” — Jason Furman

Don’t fight the Fed

I’ve posted this chart many times before. Note how absolutely correlated the Fed moves are with market rallies or declines. Fed-speak surrounding loosening/easing by the Fed are in BLUE--sparking rallies. Fed-speak surrounding an easing / loosening period ending OR a tightening program are in RED — sparking declines.

A loosening policy isn’t needed to spark a rally. Recall that I have mentioned in the past: Less tightening is the equivalent of loosening.

Today at 2:00 is Fed-speak time. Important: It’s more about the verbiage surrounding what’s to come than what the new rate hike is…

 

The technical challenge

Three conditions are needed to break the bear . At least, according to my way of doing things (see my Technical Analysis Course).

We are in a bear market – Until the SPX:

  • Breaks its downtrend – blue trendline
  • Moves ahead of its last peak at 4300 – dashed blue horizontal line
  • Stays ahead of its 200 day SMA for several days – solid black line

At this moment – we’re still in a bear market. All three of my conditions must be met to prove otherwise. Don’t predict. Just pay attention to your rules.

 

Keith on BNN MarketCall next Monday Dec. 19th at 12:00 noon

Market Call is Canada’s leading stock market call-in program. And after almost 3 years – I’m back in the studio! I hope to bring some lively and engaging discussion about the markets on the show. Your enthusiasm in seeing me back on the show was awesome. I will make every effort to prioritize (as the host allows me) calls and emails from blog readers. If you call, please mention that you read my blog! Note that emailed questions receive less priority on the show, but if you choose that route, I have already made it clear to the producer that I want to prioritize those questions specifically directed for me to answer.

CALL TOLL-FREE 1-855-326-6266
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3 Comments

  • January February March April May June July August September October November December

    Canadian CPI

    2023 154.8 155.1 155.4 155.7 156.1 156.4 156.7 157.1 157.4 157.7 158.1 158.4

    Monthly 0.21% 0.21% 0.21% 0.21% 0.21% 0.21% 0.21% 0.21% 0.21% 0.70% 0.21% 0.21%
    Y/Y 6.52% 5.65% 4.38% 3.97% 2.75% 2.29% 2.37% 2.92% 3.07% 2.55% 2.55% 2.55%

    2022 145.3 146.8 148.9 149.8 151.9 152.9 153.1 152.6 152.7 153.8 154.1 154.4

    Monthly 0.90% 1.03% 1.43% 0.60% 1.40% 0.66% 0.13% -0.33% 0.07% 0.72% 0.21% 0.21%
    Y/Y 5.14% 5.69% 6.66% 6.77% 7.73% 8.13% 7.59% 7.01% 6.86% 6.88% 6.88% 7.25%

    2021 138.2 138.9 139.6 140.3 141.0 141.4 142.3 142.6 142.9 143.9 144.2 144.0

    Monthly 0.58% 0.51% 0.50% 0.50% 0.50% 0.28% 0.64% 0.21% 0.21% 0.70% 0.21% -0.14%
    Y/Y 1.02% 1.09% 2.20% 3.39% 3.60% 3.06% 3.72% 4.09% 4.38% 4.65% 4.72% 4.80%

    2020 136.8 137.4 136.6 135.7 136.1 137.2 137.2 137.0 136.9 137.5 137.7 137.4

    Estimates – assumes monthly inflation of .21% or annual of 2.5% – Note inflation under control by May 2023

    Monthly inflation totally out of hand for 6 months January to June 2022
    October inflation consistently high
    BOC should have started increasing rates much sooner, as early as fall 2021
    Annual inflation will look high for the next 5 to 6 months, but no need to increase rates unless monthly inflation rises

    Reply
    • Thanks Paul
      My research source for economical data (which has called the entire cycle much more accurately than Yellen, or any brokerage/bank on the street):

      Headline
      Y/Y: 7.1% (exp. 7.3%, prev. 7.7%)
      M/M: 0.1% (exp. 0.3%, prev. 0.4%)

      Core
      Y/Y: 6.0% (exp. 6.1%, prev. 6.3%)
      M/M: 0.2% (exp. 0.3%, prev. 0.3%)
      Their comments note that they too expect inflation to decline, but NOT to 2%–more like the 3-4% per my blogs, and also, BTW, the guest I had on my video soon to be published:

      “Everyone celebrating the rigged CPI is back to 7.1% YoY. Meanwhile, real inflation is still not only double that, some goods are still 40% higher than pre-covid. Real wages are down for the 20th consecutive month.
      While CPI Month over Month came in weaker than expected, it did not reach the summer low of the current inflation cycle because Owner’s Equivalent Rent is still high.
      Whatever moderation we see in core CPI on this chart looks like a blip. We also note that there were several waves of inflation between the mid-1960s and the early 1980s.”

      Reply
  • Hi Keith,
    I am glad our emails to BNN ‘s producers has had the desired effect. Will try to get through the phone lines!!
    My question will be on identifying the sector rotation earlier using TA.
    Best wishes.

    Reply

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