- An 8½-year bull market: Did you miss out?
- Knuckman tells why the bull will keep charging…
- And how you can make up for lost time
- Job numbers disappoint: Is the Fed rethinking its plans?
- Small-business owners, “morons” and the estate tax
- Gold reclaims its 2017 highs… cash in a natural disaster… crypto in a natural disaster… and more!
“U.S. stocks open higher despite weaker-than-expected jobs report,” says the alert from CNBC.
We’ll talk jobs momentarily. But on this last day of the financial markets’ summer — Wall Street’s big guns will lock up their Hamptons hideaways once Labor Day is over — we step back from the day-to-day noise to explore the bigger picture.
“You cannot ignore the fact that we are in one of the greatest bull markets of all time,” says Alan Knuckman, our trading specialist on the floor of the Chicago Board Options Exchange.
“Trying to predict when that’s going to come to an end is a fool’s errand.
“Think about it: There have been people talking about the top in the market since 2009 and it’s essentially gone straight up. Unfortunately, people factor in their emotions and factor in their own biases into their trading instead of letting the markets give them the clues as to where they’re going.
“I still think the markets have great opportunity to keep going higher,” Alan goes on. “Just because we’ve come a long way doesn’t mean we can’t go further.
“That’s rule No. 1 in trading: Markets can always go a lot higher than you think and a lot lower than you think. Novice traders make the mistake of trying to anticipate the turn — they want to ‘call the bottom’ or ‘call the top.’ The problem is that mentality can be very expensive not only financially but mentally as well.
[Good point. See the chart above…]
“Will the market keep going straight up? No way. But as a professional trader, it’s not my job to predict when the next earthquake or shark bite is going to happen.
“I like to think of it this way. I’m not trying to be the smartest guy in the room. There will always be VERY smart people, or insiders, that ‘know something’ before everyone else. And while I know one secret way to follow the smart money’s lead, I’ll never ‘guess’ to be ahead of that crowd.
“But I’m certainly not going to be the dumbest guy in the room, either. That’s the person trying to pick the top.”
But surely the market will turn eventually. How would you know? What are the warning signs?
“When the market does turn it won’t happen overnight,” Alan tells us. “Don’t listen to anyone that says otherwise. It’s not going to be a straight-down move. In fact it’ll happen in a very recognizable way.
“The first step is we need to see sustained ‘sideways’ action. In other words, we need to see a period of time when we don’t make new all-time highs. And by the way, I don’t think we’ve gone more than a couple weeks at most before making new all-time highs in the major market indexes.
“After we see that sideways action, from a technical standpoint, what I’ll be looking for is if we do close below the 200-day moving average in the S&P (and this will be a recognizable mentality shift as well). You don’t have to make this any more complicated than it is… the 200-day moving average is just a technical situation that people pay attention to. If that happens for, say, a month, then the overall trend may be broken a bit.”
As a visual reference, we’re nowhere near that point right now… and haven’t been since Election Day.
“A downturn won’t just sneak up on us,” Alan goes on. “Professional traders don’t sit around guessing. They wait for a change in the trend and they act appropriately.
“In today’s market, though, I’m still a believer in buying any dips.”
Besides, what’s the alternative? We touched on the TINA phenomenon — “there is no alternative” — a few days ago, but it’s worth exploring here.
“What are you going to do, buy Treasuries?” says Alan. “I always look at Treasuries. I used to work in the pit, but right now we’ve got the 30-year Treasury at barely 2.75%. Are you going to tie up your money for 30 years to get 2.75%? Probably not.”
Not when you can get as good a yield or better from many S&P 500 stocks.
“Until that equation changes,” Alan concludes, “I’m not expecting this market to turn.”
[About how “smart money” and insiders have the ability to be ahead of big stock moves: Alan recently became privy to what he considers the biggest breakthrough in his 25-year trading career — a patent-pending system that can give “the little guy” an edge.
If you feel as if you’ve missed out on the last 8½ years of stock market gains, here’s a way to start playing catch-up — fast. We’re talking about…
- 48% gains from XLF in 13 days
- 74% gains from AAPL in 16 days
- 100% gains from MSFT in 9 days
- 51% gains from CSIQ in just 1 day!
- 45% gains from MSFT in, again, just 1 day!
- 63% gains from NEM in less than 2 hours!!
Alan is eager to show you the ropes with this trading breakthrough. Click here for a hands-on introduction. Please note: This presentation comes offline after Labor Day weekend, for reasons you’ll see when you follow the link.]
As the day wears on, the Dow has clambered back above 22,000 for the first time in 2½ weeks.
Gold has reclaimed the week’s highs — the year’s highs too, for that matter — at $1,321. Crude is stabilizing for the moment at $47.17.
About those job numbers: The Bureau of Labor Statistics conjured only 156,000 new jobs for the month of August. That’s barely enough to keep up with population growth. In addition, the July and June numbers were revised down.
The official unemployment rate inched up to 4.4%. The unofficial unemployment rate from Shadow Government Statistics — accounting for all the people who’ve given up looking for work and all the part-timers who’d like to work full time — also inched up to 22.2%.
In terms of the impact on Federal Reserve policy, today’s numbers barely matter — except the fact that wage growth is still anemic at 2.5% year over year. Wage growth would be a sign of inflation starting to take off, and it’s just not happening.
As we said yesterday, without more inflation the Fed will be hard-pressed to raise its benchmark fed funds rate again this year. In fact, today’s wage number is prompting chatter that the Fed might even hold off on its much-ballyhooed plans to shrink its balance sheet.
The other big number of the day is the ISM manufacturing index — which came in way better than expected at 58.8, the strongest reading since late 2014. We continue to caution that the ISM is a survey, “soft data” as the expression goes… and the soft data from the factory sector this year has been consistently sunnier than “hard data” like sales.
So now we know what Trump’s top economic adviser really thinks: Small-business owners are “morons.”
There was a bit of a stir this week when The New York Times had a story about the White House’s tax-reform discussions with Congress. Supposedly during one exchange earlier this year, National Economic Council director “Goldman” Gary Cohn implied to Senate Democrats that repealing the estate tax isn’t a big White House priority because “only morons pay the estate tax.”
Added the Gray Lady: “A source close to Mr. Cohn denied that he had used the word, saying he had been referring to ‘rich people with really bad tax planning.’”
Fair enough. But let’s think on this for a few moments. Under current law, a 40% tax is applied to estates valued over $5.49 million for individuals, $10.98 million for couples.
And for many of America’s wealthy elites, that’s not enough. Warren Buffett, for instance, has been thumping the estate-tax tub forever. In 2012, he and Bill Gates signed a statement demanding the exemption be lowered to $4 million, and a progressive tax be applied with a minimum 45% rate.
If you suspect a hidden agenda at work, you’re right…
“In the process of building his company, Berkshire Hathaway, Mr. Buffett benefited tremendously from death tax,” wrote Dick Patten a decade ago at Human Events.
Mr. Patten runs the American Family Business Institute — an outfit that’s long lobbied for the estate tax’s repeal. He points out that Berkshire owns a huge life insurance business, and life insurance is one of the vehicles the wealthy have used over the decades to pass wealth to their heirs free of estate tax.
But more important, Patten pointed out that “Buffett has bought numerous companies who were forced to sell because of the death tax including: Dairy Queen, Jordan’s, Justin Industries, Star Furniture, Borsheim, Ben Bridge Jewelers, U.S. Liability, NetJets, R.C. Wiley, FlightSafety and Nebraska Furniture Mart.”
The estate tax has relentlessly eroded the local family-owned business in America.
For decades, aging business owners have opted to sell to an out-of-town buyer and get paid in stock of the acquiring firm. The alternative is to hold on… and then the heirs have to sell anyway because they don’t have ready cash to pay the estate tax.
I think of my own former profession of broadcasting, where there are almost no family-owned network TV affiliates left. Off the top of my head, the only family left standing in 2017 is the Paxtons of Paducah, Kentucky. The Duhamels in Rapid City, South Dakota, sold in 2014. The Hasbrooks and Martins in Vermont cashed out three months ago (for $29 million — way more than the estate-tax exemption split between the two families).
So Gary Cohn is right in one sense. Few heirs end up paying the estate tax. But the few who do bear a unique burden: They’re descended from people too busy building their businesses to think about all the fancy lawyering and financial engineering necessary to keep the proceeds of those businesses in the family after they’re gone.
If he thinks they’re “morons,” that says far more about Goldman Gary than it does about them.
“If depriving the masses of cash carries no risk, why has it not been done already?” a reader writes after yesterday’s episode.
“The downside for them would be total chaos. The elites need the people be happy and content in order for them to get what they want. Like a cattle feedlot. There is a reason there are all heifers and steers and NO bulls. Things MUST be calm for profits to be high.
“We will be cashless when offices are paperless.”
The 5: You raise a good point about the consent of the governed. We get that.
But we come back to the case of the “demonetization” program in India, which we revisited yesterday. It wasn’t an outright ban on notes and coins, true, but it was a massive social experiment — with nearly 18% of the globe’s population as guinea pigs.
People died in the ensuing chaos… but Prime Minister Modi paid no political price. Don’t think that people in Washington, Brussels and other power centers aren’t studying how Modi pulled it off…
“Ain’t that a cold, hard lesson in capitalism?” writes one of our regulars on the India experiment.
“So the Indian government’s ostensible reason for banning its most common bank notes was to flush out the ‘black money’ that escapes taxation. To the dismay of the Reserve Bank of India, however, 99% of that cash was returned to banks (instead of being rendered worthless, as it had hoped).
“If the second most-populous country in the world is any example, it turns out that almost all currency in circulation is not being used for criminal purposes.
“As you pointed out, the global elites may have used this as a test case in their war on cash. God bless ’em. Their central banking cartel foists this damnable fiat stuff on us — and even mandates its use with legal tender laws. Translation: Centrally planned counterfeiting is being shoved down our throats and rationalized with this nonsense about rooting out criminals.
“You can’t make up this stuff. And you gotta wonder what lesson the banksters have taken away from this.”
“I am curious how useful cryptocurrencies have been to the good people of Texas and Louisiana in recent days,” writes the same reader.
“I don’t mean to sound like a jerk — and I realize this is the last issue anyone needs to focus on right now! The situation in the Gulf Coast region is a disaster, and the people there have much more important things to deal with.
“I live in Buffalo, where we’re known for our weather events. But even the 2014 Snowvember storm we had here was NOTHING compared to Hurricane Harvey. That has been a nightmare.
“I’m with Jim Rickards on the whole crypto-mania thing: Bitcoin and others are all the rage right now, but I think they may be distracting us from some important realities. From time to time, a large body of water goes airborne and lands all around us — or some other grid-down dystopia arrives (if only temporarily) on a few million people’s doorsteps. We should ask ourselves what type of money we really want to have on hand when TSHTF.
“Apologies if that sounds insensitive. I wish all the best to folks in the Bayou and Lone Star states.”
The 5: As do we.
While crypto might not be useful for transactions there at the moment, the blockchain does preserve a record of who owns what cryptos… and those records are stored in millions of computers around the world.
So we can see how crypto does function as a wealth-preservation tool in times of chaos. No wonder so many Chinese are piling into it when they have no idea what fool thing their government might do next…
Have a good weekend,
Dave Gonigam
The 5 Min. Forecast
P.S. We’re back tomorrow with our Saturday wrap-up, 5 Things You Need to Know. U.S. markets are closed on Monday for Labor Day, so the weekday edition of The 5 will return on Tuesday.
