NFTRH+; The Schiff Squirrel Prompts Us to Pay Serious Attention to Yield/Market Dynamics [w/ edits]

I joked about Perma-bear Peter Schiff doomsaying the stock market in an earlier post, but a commenter noted that renowned bear Tim Knight (Slope of Hope) was giving up the ship on the bear side and in my mind that evens out the contrary bullish view of Perma-Peter. We’ve been noting grossly over-bullish market sentiment lately, after all. That got me thinking about the crash of ’87 again, which is the main theme in Schiff’s thesis as promo’d by the financial media.

Just as I am (more than) open to the Hoye squirrel finally finding his ‘post-bubble contraction’ nut I am open to the Schiff squirrel finally finding his stock market doom nut. In fact, I believe that if thing 1 (the everything bubble bursting for real) happens, thing 2 (a resulting stock market bear) may be worse than any things we’ve seen over the last couple decades of boom/bust volatility. In other words, a boom may not so readily follow the next bust…

…which on a side note is our desired INVESTMENT backdrop for the gold mining industry; not this inflationary boom/bust thing we’ve had for the last 2+ decades. That is the stuff of perma-promoters in the gold bug information industry. This leads us back to the Continuum and its 2022 breakout.

My own view that the market is grossly over-bullish along with the anecdotal info about ultra-bear Tim, got me to go back to a Continuum chart similar to the one we used in an update on July 17 to gauge the situation now vs. the situation during the fabled crash of ’87 (heretofore referred to as “the crash”).

Similarities between then and now: The stock market had been rising with a declining yield previous to the crash. Then the market crashed after a sharp upturn in the yield. Today the stock market is rising after a minor 2022 bear phase that came with an initial and impulsive rise in the yield.

As we’ve been noting, the NFTRH view has been that the 2023 rally is here to correct the stock market’s initial lurch bearish, which came before a proper signal from the other end of the Treasury curve, the T-bill/2yr yield divergence, in place now but not last year. Here is a review of that concerning situation in this post from July 21.

Going a step further and considering the gross distortion in the T-bill yield above the 2yr yield, and in consideration of the 30yr yield, which looks like it wants to break a bull flag upward, might not the stock market now have two major bond market enemies working against it? Yes, it might… and does. The crash instructs that the market was bullish until one day it was not bullish. Today we have signals in the bond market that might be a warning for those who care to listen.

[edit2] But the crash did not come with technical signals. It came out of nowhere, but it also came from somewhere. It came from bond market and macro signals. But betting on such a thing at any given time is like betting on the proverbial needle in a haystack. You might find it, but you probably will not. Which is why Schiff, someone I actually agree with more than disagree, is a squirrel. It is why Hoye, someone I agree with even more, is a squirrel. Squirrel find nut? Squirrel be lucky.

The SPX target of 4800 is just the latest target. While it is not a stop sign, it also sure is not a done deal. That is why I sold DIA today (and despite my reservations, shorted QQQ), even though the measured target is higher. I am not giving a high risk market any benefit of the doubt. Profit now, and collect interest on cash. Not a bad way to go at this time.

Our thesis has been that when the next shoe drops on the stock market, it will be a lot worse than the mild thing in 2022. There are few technical signals for women who stare at stock market charts (alone) to go by. But by looking at charts of internal market dynamics, there sure are warnings and those warnings get more stern with every jump up in yields and in stock market prices.

Please take this in the spirit intended. A market thought piece, not a media eyeball harvesting scare tactic. The market can easily continue upward in the near-term, but as we’ve been noting all along, so too will risk travel with it. The main market theme has been sentiment rally to correct the decline into Q4, 2022 and then a top, possibly a very significant one. So the stuff above fits well with the larger macro theme we’ve had all along.

I am drained from an active day. I’ll review this post later and edit if/as needed. But I wanted to get it up for your review. Feel free to drop comments below.

[edit1] For effect, let’s include the data reviewed in the July 17 NFTRH+ update linked above showing the levels to which today’s celebrated GDP is leveraged to debt (123%) vs. 1987 (48%). So consider this yet another factor against the market on the larger macro picture.


This Post Has 2 Comments

  1. Paul

    In Tim’s defense, Tim trades charts, not ideology: fibs, trend lines, support & resistance, TA patterns. More important, he honors his stops, closes out, takes a loss, when price violates a preset risk-tolerance parameter. Yes, he is appalled by the printing press, free money, vile orgy that’s gone on for decades and expects it all to end badly. But who in his right mind isn’t / doesn’t?

    1. Gary

      Speaking very personally, I have a soft spot for Tim because he’s a true believer and galled by this whole thing, as I am.

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