The Morning Line

As the bear market runs its course in the months and years ahead, it will be punctuated by sharp and sometimes spectacular rallies to convince investors the worst is over. That is how Mr. Market will trap most of them into sticking with stocks until the bitter end. For only when the last bull has thrown in the towel and mass capitulation takes stocks down to levels practically unthinkable now can a floor be created for the next bull market. The first such bear rally started in mid-March and lasted for two weeks. It was not particularly impressive because it didn’t have to be: a mere 15-percenter would have pushed the S&Ps to new record highs. The rally failed well shy of that benchmark, however, before a punitive relapse set in. Stocks appear to have bottomed last week, but not before piercing a Hidden Pivot support that should have held if the current rally is going to achieve new highs. Last week’s commentary was skeptical that the rally would retrace fully half of the downtrend since the bear market began on January 4. That would equate to a top near 4300 in the S&Ps. Using the recent low at 3807, there is now a technical basis for a more confident and precise forecast. Specifically, the S&P 500 appears bound for a minimum 4305.50, basis the June E-Mini contract. The futures look all but certain to reach that number, given the way they impaled the ‘midpoint Hidden Pivot’ at 4056 toward the end of last week. Less certain is that the rally will end there. Indeed, if it blows past 4305, that would suggest Mr. Market has nastier plans for bears who may have overly enjoyed the April/May plunge. Not Quite Impossible Will the rally achieve new highs? I strongly doubt

The same geniuses who recently handicapped a recession that likely began several months ago as a 20% possibility are now reassuring us that the bear market has already run its course. If so, it would be the mildest, shortest bear market in history --three hours and 20 minutes, to be exact. The S&Ps entered bear-market territory on Friday when they dipped below 3854 at 12:10 p.m. That represented a 20% drop from the record high 4818 recorded on January 4. Permabears didn't have much time to celebrate, however, because nervous nellies began to cover short positions an hour later. The buying began with the usual trickle, but shortly after 3:00 p.m. the stampede was on. It pushed the S&Ps back above 3854 at 3:30 p.m., and within the hour to a small gain on the day. Wall Street and its news media toadies will spin Friday's trampoline bounce as bottoming action. However, even these bozos are not so bold as to trumpet the likelihood of new record highs, at least not yet. Their hubris will probably remain subdued until such time as the S&Ps have recouped perhaps half of their losses since January. That would put the index at 4300, a short-squeeze worthy of the name. Relapse Odds My guess is that the rally won't get anywhere near 4300 and that a relapse will begin within the next 4-7 days if not sooner. Bears may be sufficiently spooked to provide buoyancy as the week begins. But they were almost as spooked a week earlier, when a Friday short-squeeze led me to mistakenly expect a follow-through on Sunday/Monday. This time, for bulls and bears alike, the yellow flag is out.

We've had four months to observe and analyze the bear market that began a single tick off January 4's record high. What might be said about it so far?  Mainly that it has been far kinder and gentler than we should expect. Realize that the biggest financial bubble in U.S. history has popped. Although this is becoming increasingly obvious, you can be certain investors are waiting to jump back in at the subtlest sign of a bottom. Their brokers and financial advisors will be the first to spot this bottom, along with a dozen more as the broad averages work their way toward the deepest bottom imaginable In the meantime, the little guys reportedly have been shifting their capital into money market funds, although not at a pace that has spiked redemptions at Vanguard, Black Rock, State Street and a few other biggies that for 13 years made the bull market seem unstoppable. At some point the Leviathans will necessarily turn seller as their customers dive out of shares. It is impossible to say when this climactic phase of the bear market will begin or how long it will take to run its course. Much sooner than we might expect, and with blitzkrieg speed, are two possibilities for which we must be prepared. What is certain in any event is that when Vanguard, Berkshire, Fidelity, Black Rock et al. are forced to dump their crown jewel AAPL, the little guys will not be stepping in to support it at $100, or $80, or $60, or even $20. In the extremely unlikely event they are in a buying mood as the Mother of All Dips seeks a bottom, their ammo will be gone, deflated into hyperspace by ruinous asset deflation. The Lomcevak More immediately, however, we should view last week's sharp

Last week's commentary asked how high the dollar can climb before it snuffs inflation and the increasingly shrill hysteria that has accompanied it. Inflation is supposed to cheapen the dollar, but that is not what has been happening. Instead, it has been climbing steeply relative to all other currencies. The experts have not been able to explain this, nor why the rally began well before the Fed was even thinking about tightening. It is simple, though, if you understand deflation and its chief symptom, a rise in the real burden of debt. The dollar has been climbing because it "knows" there are more debts than can ever be repaid. This can only result in massive waves of bankruptcies that are going to make us nostalgic for the consumer inflation that is today's headline news. Sure, the Fed could print enough money to pay off everyone's debts, including its own: student loans, our collective liabilities for Social Security, Medicare and private pensions, etcetera - but also car loans, mortgages and credit card balances that have ballooned. The resulting hyperinflation would solve nothing, however, even as it destroyed lenders as a class and all institutional conduits of borrowing. The megabanks would be ruined, leaving no one to lend to you, me or anyone else. It could take a generation or longer for credit to sprout roots again. Do we really want to go down that path? More Tightening Unneeded This week's question is related to the one about the dollar: How high can interest rates climb before they snuff inflation and the increasingly shrill hysteria that has accompanied it? Economists and pundits seem to think the Fed has only begun to tighten. More likely is that interest rates are already high enough to have tripped the U.S. and global economies into deep

A lone deflationist on the lunatic fringe of economics 30 years ago, I wrote in Barron's and the San Francisco Sunday Examiner that an out-of-control dollar eventually would do us in. Specifically, I asserted that a short squeeze on dollars would send their value soaring, making it difficult or impossible for anyone who owed dollars to repay them. I'd already run this idea past a few Ivy finance professors, who all had the same reaction: "What have you been smoking??"  Not Professors Ivor Pearce and W.P. Hogan, however. It was their 1984 book, The Incredible Eurodollar, that had awakened me to the potential disaster brewing in a dollar market vastly larger than all of the others put together, including stocks and Treasury paper. Could a tradeable asset available in theoretically unlimited quantities from the central bank ever be in dangerously short supply? "An interesting question," Prof. Pearce allowed in a phone conversation we had at that time. The possibility had fascinated me since my days as a floor trader on the Pacific Stock Exchange. It was not uncommon to see a stock soar simply because too many traders had bet against it. These panic-driven melt-ups blithely ignored poor 'fundamentals' to generate rallies that tended to enrich the reckless and stupid at the expense of the well-informed. The latter invariably suffered pain an even financial ruin, although many of them were very smart guys who could do the math. In one particularly memorable instance, they calculated that a certain airline stock trading for around $80 was not worth half that. After the stock ultimately climbed above $200, standing quants on their heads and wrecking some financially promising young lives, the quaintly stupid notion of 'valuations' would never be the same for them. Or for me. Short Up the Old Wazoo This

If you're a permabear, it might be refreshing to view Friday's thousand-point Dow avalanche as the start of a wholesome new trend. My gut feeling, however, is that the plunge will reverse before midweek, ideally at Hidden Pivot targets featured in the latest list of 'touts' on the Rick's Picks home page. I'll keep an open mind about this if the targets get smashed, but I'm not convinced the stock market has begun the punitive reset it has needed so badly for years. Arguably more interesting and consequential is the steep ascent of yields on the 10-Year Note to within inches of a 3.24% target that I've been drum-rolling for months. What will happen when we get there?  My gut feeling is that rates will level off for at least a few months, then head lower for a long, long time as the U.S. and global economies slide into a deflationary bog. Lower rates unfortunately will bring no relief for debtors, however, since the value of assets that they've hocked up to their eyeballs as collateral will be falling as well. Snuffing Inflation From a technical standpoint, the 3.24% target looks too clear and compelling not to halt the rise in long-term rates at least temporarily. From a fundamental standpoint, the reason I doubt the rally will blow past 3.24% is that at that level the total burden of all debts will be sufficient to snuff inflation of every sort, turning the real estate bubble, for one, into a black hole of deflation. This will happen irrespective of what the wizards at the central bank intend or expect. Some are saying the Fed wants the stock market lower. Although that sounds plausible, we shouldn't trust that they know how to do this without collapsing an already shaky global economy. The

For many of us, as pleasurable as it might be to picture Twitter in the hands of Elon Musk, and to imagine a despairing Jack Dorsey committing seppuku, Musk should save his billions for more useful purposes. He could start by building a competitive platform for a hundredth of what he's offered to pay for Twitter. He could also buy an existing platform such as the up-and-coming TruthSocial for a relative pittance. What is Twitter's value, after all? The company has been losing steady money offering a place for 'progressive' extremists to set up sniper positions online. But would allowing the rest of us to post there improve the bottom line? There are reason to doubt this, for in fact the resulting free-for-all could wind up driving subscribers and advertisers away. Musk says he simply wants to promote free speech. While it is true that nearly any conceivable change in Twitter's content would bring improvement, one suspects that his main goal is to punish the platform's narrow-minded managers for being the crypto-Stalinist apparatchiks they are. That being the case, and assuming Musk's offer is successful, we should look for him to relocate Twitter from San Francisco to a red-state stronghold. Enid in Oklahoma comes to mind. Or perhaps Bristol, Tennessee. Or Bullhead City, Arizona. Woke-ism Under Attack Regardless of whether the deal flies -- and there are good reasons to doubt that it will -- Musk has provoked a healthy discussion of the impact on America of Twitter's heavy-handed censorship. Woke-ism is on the run, under attack lately not just from political conservatives, but from centrists and others who have tired of living under wacky rules designed to benefit the few at the expense of the many. Most of us would be content to live and let live. November's mid-term

For more than a year, I've recommended what my friend Doug Behnfield calls the 'barbell strategy' to secure one's nest egg against the deflationary hard times that lie ahead.  As formulated by Doug, a wealth-management advisor based in Boulder, the barbell portfolio is constructed with gold and bonds as offsets. Try to imagine the worst of times and you may have difficulty concocting a scenario in which T-Bonds and munis on one hand, and gold on the other, would fall together. However, it is relatively easy to imagine circumstances in which either or even both sides of the hedge would rise in times of extreme economic adversity. I had suggested holding off on the T-Bond portion of the hedge until interest rates peak. That day is coming, probably sooner than most 'experts' think, but we are not quite there yet. Yields on the Ten-Year Note ended last week at 2.71%, but my forecast calls for a top, or at least a lengthy leveling off, at exactly 3.24%. This is somewhat higher than the 3.02% rate I'd projected  for the 30-Year T-Bond, the difference lying in the way their respective rallies have unfolded. For purposes of optimizing the barbell hedge, however, I'd suggest using the 3.24% rate indicated in the chart above. No More Volckers A top at that level would be a far cry from the 20% peak in June 1981 that followed two years of tightening by Paul Volcker. As a result, inflation remained subdued for more than 30 years. The effects of tightening this time around could not conceivably turn out to be as benign as before because the debt sums affected are exponentially larger. To cite one particularly menacing example, Third World debts amounted to perhaps $1.5 trillion in the mid-1980s. This sum was deemed sufficient to

[Counting on the Fed to ride to the rescue when the bubble finally pops?  You had better have a Plan B, and for good measure a Plan C, since America could be in for something far worse than mere recession when the asset boom ends.  In the commentary below, my friend Charles Hugh-Smith spells out the reasons this is likely with greater clarity and concision than I have. I am grateful for his permission to reprint the essay, an installment of the 'Musings' emails that go out to subscribers every Saturday. Discover his extraordinary blog, books and deeply original reflections at OfTwoMinds.com by clicking here.   RA ] **** By Charles Hugh Smith The saying "demographics is destiny" encapsulates the reality than demographics--rising or falling trends of births and deaths--boost or constrain economies and societies regardless of other conditions. Demographics are long-term trends, but the trends can change relatively rapidly, with momentous future consequences. As this article below mentions, extrapolating the high birth rates and falling death rates of the 1960s led to predictions of global famine. As death rates declined and women's educational and economics prospects brightened, birth rates fell, a trend that now encompasses most of the world. As a result of the Green Revolution (hybrid seeds and hydrocarbon-based fertilizers), the Earth supports more than twice as many humans as were alive in the 1960s (3.5 billion then, 7.9 billion now). Now the problem is a shrinking working-age population that will be unable to support the financial and healthcare promises made to the retired generations. Birth rates in developed nations have fallen below replacement rates, which means populations are shrinking and populations are aging rapidly, i.e. the average age of the populace is rising.. One side effect discussed in this article is the decline of the cohort of young