Gophers have lately been eating my rose bushes. So I bought some special humane catch and release traps imported from France. Using peanut butter and almonds as bait, what did I catch the first night?
A skunk.
Guess who has skunk removal duty in this family? That would be me.
The Federal Reserve has some skunk duty of its own in the near future. For the time to take the punch bowl away is rapidly approaching.
A majority of Fed presidents now believe that continuing $40 billion a month worth of mortgage bond purchases while there are nationwide bidding wars going on in the housing market is nuts. So a taper is coming most likely in September if we get another hot jobs report.
The last time the Fed tapered, way back in 2013, the stock market dropped 5%. Remember the “taper tantrum”? It then realized the error of its ways and resumed stimulus. So, the worst we can expect is a 5% correction in the fall. And by the way, the market technicals have been screaming for a correction.
It will just be another buying opportunity. The wall of money is still getting higher, even with a Fed pullback. US corporate profits are likely to soar from $1.9 trillion in 2020 to over $10 trillion in 2021. More than $1 trillion of this is being poured straight back into share buybacks by the healthiest companies.
So the first round of taper, some $480 billion annualized, pales by comparison to the enormous profits and wealth being created right now.
And the Fed isn’t about to end QE, just tone it down. There isn’t a hint of actually withdrawing liquidity from the system, just slowing the rate of increase. It’s why there is active discussion of reappointing Jay Powell for a second term as Fed governor, the greatest QE king of all time. That alone would be worth a thousand-point rally in the Dow.
It is truly amazing how much liquidity has entered the system since the Great Recession. Since 2008, the Fed balance sheet has exploded from $400 billion to $8.9 trillion. It has created this staggering amount of money while keeping interest rates near zero.
During this time, the Dow has risen 59X from 600 to 35,500. All of the new money created is still in the system. The only thing it can buy is stocks, homes, and commodities.
And the best is yet to come!
It’s looking like the delta variant will cost the US about 3% in GDP growth this year. But that growth isn’t lost, just deferred into 2022. That keeps the party rolling on, with or without a punch bowl.
Fed Minutes show a Taper is in the Works, almost certainly cutting monthly bond purchases before yearend, but the delta variant is stretching it out. The (TLT) was rallied on the news and interest rates dropped. Short term rates to remain glued to zero. Asset inflation continues.
Equity Mutual Funds see third week of inflows, some $2.67 billion. Blockbuster Q2 earnings were a major driver where 73% of firms beat forecasts. Q3 looks just as good. Financial sector funds saw the greatest gain, one of the few places where investors can still find value.
Bitcoin market recovers $2 trillion value, with the weekend rally to $48,142, a three-month high. The break above the 200-day moving average is proving big.
Delta continues to take its toll, with new cases topping 130,000, half the January 20 peak, and deaths at 1,500. When it peaks in a few weeks, it will present one of the best buying opportunities of the year for stocks. The “end of delta” rally is coming. The US should top the 625,000 fatalities we saw during the 1919 Spanish Flu in the coming week.
Share Buy Back companies are beating the market. Shrinking the float has always been a big winner for the share prices and the senior management who are paid in stock options. This year, they have the money to do so with massive earnings increases. Goldman Sachs (GS) has put together a portfolio of the biggest buy-back companies and it is handily outperforming the index. What is the number one holding by a large market? Apple (AAPL), which has $250 billion in cash.
Homebuilder Sentiment dives, down 5 points to 75, as high prices cure high prices. Anything above 50 is still positive, but this is the lowest reading since last year. Materials and labor shortages are still a big problem. Nobody can get windows.
July Retail Sales disappoints, down 1.1%, delivering a 300-point hit for stocks. Tech is leading the downturn and Bitcoin took a hit. Clearly, delta is inciting a new “stay at home” movement, at least for the short term.
Housing Starts hit three -month low, down 7% in July to 1.53 million units. Materials and labor shortages are the issue.
Robinhood reports a Q2 loss of $2.16 a share, or $502 million. Revenues came in at $565 million, up over 131%, making it the fastest-growing broker on Wall Street. Shares were down small on the news. Some 60% of account owners are trading in crypto. Buy (HOOD) on dips.
My Ten-Year View
When we come out the other side of pandemic, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With interest rates still at zero, oil cheap, there will be no reason not to. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The American coming out the other side of the pandemic will be far more efficient and profitable than the old. Dow 240,000 here we come!
My Mad Hedge Global Trading Dispatch saw a modest +6.05% in August. My 2021 year-to-date performance appreciated to 75.26%. The Dow Average was up 14.77% so far in 2021.
This was an options expiration week, running five positions in (TLT), (JPM), (GS), and (V) into max profit. I stopped out of a long in (HOOD) close to cost.
That leaves me 80% in cash at 20% in short (TLT) and long (SPY). I’m keeping positions small as long as we are at extreme overbought conditions.
That brings my 12-year total return to 497.81%, some 2.00 times the S&P 500 (SPX) over the same period. My 12-year average annualized return now stands at an unbelievable 42.76%, easily the highest in the industry.
My trailing one-year return popped back to positively eye-popping 113.21%. I truly have to pinch myself when I see numbers like this. I bet many of you are making the biggest money of your long lives.
We need to keep an eye on the number of US Coronavirus cases at 37 million and rising quickly and deaths topping 628,000, which you can find
The coming week will bring our monthly blockbuster jobs reports on the data front.
On Monday, August 23 at 11:00 AM, the Existing Home Sales for July are out. Palo Alto Networks (PANW) reports.
On Tuesday, August 24, at 11:00 AM, New Home Sales for July are published. Toll Brothers (TOL) reports.
On Wednesday, August 25 at 8:30 AM, the July Durable Goods get printed. Snowflake (SNOW) reports.
On Thursday, August 26 at 8:30 AM, Weekly Jobless Claims are announced. We also get the second estimate of US Q2 GDP. Dell Computers (DELL) reports.
On Friday, August 27 at 8:30 AM US Personal Income & Spending are disclosed. At 2:00 PM, the Baker Hughes Oil Rig Count are disclosed.
And how did I deal with my captive skunk? I gingerly approached the cage with a large garbage bag and threw it over. Then I wrapped the entire cage up and threw it in the back of the car (not the Tesla). I then drove down the mountain, pulled over to the side of the road, opened the gate to the trap, and ran like hell. One angry skunk took off up the hill.
As for me, while in New York a few years ago waiting to board Cunard’s Queen Mary II to sail for Southampton, England, I decided to check out the Bay Ridge address near the Verrazano Bridge where my father grew up.
At the outbreak of WWI, my Italian-born grandfather volunteered for the army as a ploy to gain US citizenship. He was mustard gassed and was completely blinded for two years, living in a veteran’s hospital, a relic from the Civil War.
In 1923, 5% of his vision came back in one eye, so US citizenship in hand, he used his veteran’s benefits to buy a home on 76th street in Bay Ridge, then a middle-class Italian neighborhood.
I took a limo over to Brooklyn and knocked on the front door. I told the driver to keep the engine running.
The owner was expecting a plumber, so he let me right in, despite the fact that I was wearing my pre-boarding attire of a Brioni double-breasted blue blazer and Gucci shoes. I told him about my family history with the property, but I could see from the expression on his face that he didn’t believe a single word.
Then I told him about the relatives moving into the basement during the Great Depression. Grandpa never bought a stock in his life and thought the stock market was a Ponzi scheme. After the 1929 crash, several relatives lost their homes and moved into grandpa’s basement as a last resort.
He immediately offered me a tour of the house. He told me that he had just purchased the home and had extensively remodeled it. When they tore out the basement balls, he discovered that the insulation was composed of crumpled-up Brooklyn newspapers from the 1930s, so he knew I was telling the truth.
When the Japanese attacked Pearl Harbor on December 7, 1941, dad went straight down to Times Square and volunteered for the US Marine Corps. He was given a few days to settle his affairs and then the family didn’t see him for four years.
Before he left, dad wrapped up the engine parts of a 1928 Ford Model A with old newspapers which he had bought from a junkyard and was rebuilding. There they sat in cardboard boxes until 1945.
At the end of my tour, I was shown the brick garage where those cardboard boxes sat. Grandpa received a telegram indicating the day dad would return from San Francisco by train. He warned everyone not to cry. The second dad stepped into the house, some 40 pounds lighter, it was grandpa himself who started bawling.
I told the owner that grandpa would be glad that the house was still in Italian hands. Could I inquire what he had paid for the house that sold in 1923 for $3,000? He said he bought it as a broken-down fixer-upper for a mere $1.5 million and had put another $300,000 in it.
As I passed under the Verrazano Bridge on the Queen Mary II later that day in the two-floor Owner’s Suite, I contemplated how much smarter grandpa became the older I got.
I hope the same is true with my kids.
Grandpa in 1966
76th Street in 1930
1928 Ford Model A
Queen Mary II Sailing Under the Verrazano Bridge Past Bay Ridge
