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Musings Report 2023-11 3-11-23 Look Out Below Part 2
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For those who are new to the Musings reports: they're a glimpse into my notebook, the unfiltered swamp where I organize future themes, sort through the dozens of stories and links submitted by readers, refine my own research and start connecting dots which appear later in the blog or in my books. As always, I hope the Musings spark new appraisals and insights. Thank you for supporting the site and for inviting me into your circle of correspondents.
Look Out Below Part 2
Last week I presented evidence that strongly suggested the stock market was increasingly vulnerable to a significant decline. Now Silicon Valley Bank has collapsed, at least in part due to doomed tech start-ups withdrawing their remaining cash to fund their last-ditch survival as the entire start-up space faces an "extinction event," as future funding from SPACs, venture capital firms and banks dries up.
A Silicon Valley insider called me yesterday to report that the failure of SVB was very likely to trigger a severe stock market downturn, as this indicated a decline in both Financials and Tech, the two sectors that have led every Bull Market since the 1980s (and arguably, since the 1960s).
The consensus among financial analysts holds that the Federal Reserve will quickly reverse course and drop interest rates and restart monetary stimulus (QE). I have argued that the assumption that the Fed will once again "save the stock market" is a misreading of the situation, which is now entirely different from 2000 and 2008-09.
I explained my rationale in What If the Whole Point Is to End "The Fed Put"?
In essence, the Fed must refuse to "save the stock market" to eliminate a very destructive moral hazard, i.e. stock market gamblers have been rewarded for taking hugely risky bets because they have been assured the Fed will always rescue the markets, regardless of any other conditions. Inflation is a legitimate issue, but it also provides cover for removing "the Fed Put," the implicit promise that the Fed will flood the financial system with fresh credit/cash to reverse any market decline.
Additionally, I think bailing out "too big to fail" speculators is no longer politically viable. Given the constraints, the option of painlessly "saving the stock market" via dropping interest rates and QE is no longer available.
These are not my forecasts, these are targets publicly posted by technical analysts who have been more right than wrong in the recent past. Many analysts have targets around SPX (S&P 500) 3,400, implying an almost 500-point decline ahead. Others have targets around 3,200, implying a 700-point decline. Longer term, some have targets around 2,200, while others see eventual lows around 1,800. As for when the lows occur, some analysts are forecasting October 2023, others see a low in 2023 that is followed by a rally and a crash in 2024. In other words, nobody knows. We're all on our own.
Technically, the wedge structure in the SPX has broken to the downside, and the weekly MACD and stochastics indicators are bearish. The first chart is March 3, 2023, the second chart is a week later, March 10, 2023.
As I remind readers of the blog, no one needs to "be in the market." There are plenty of ways to invest in yourself without owning a single share (or zero-day to expiration option). This is the path of Self-Reliance.
Highlights of the Blog
If AI Can't Overthrow its Corporate/State Masters, It's Worthless 3/9/23
What If There Are No Solutions? 3/7/23
What If the Whole Point Is to End "The Fed Put"? 3/5/23
Best Thing That Happened To Me This Week
Finally getting through a hellacious chest cold (week 3)...
From Left Field
NOTE TO NEW READERS: This list is not comprised of articles I agree with or that I judge to be correct or of the highest quality. It is representative of the content I find interesting as reflections of the current zeitgeist. The list is intended to be perused with an open, critical, occasionally amused mind.
Many links are behind paywalls. Most paywalled sites allow a few free articles per month if you register. It's the New Normal.
The Capex Super-cycle
The Age of Scarcity Part 1: The inflationary impact of government spending
The Age of Scarcity Part 2: The end of the age of abundance -- echoing my book / work...
The Surplus Energy Economy, part 4 FRACTURE AND DE-FINANCIALIZATION -- Tim Morgan, worth a careful read....
Why do leaders & the public deny peak oil & limits to growth?
Fifty Million Farmers (Richard Heinberg)
Scientists pour cold water on UK aviation’s net zero ambitions.
How do rich people avoid taxes? Wealthy Americans skirt $160 billion a year in tax -- trusts, foundations, etc.
For tech giants, AI like Bing and Bard poses billion-dollar search problem -- boils down to higher costs with no additional payoffs...
NYC brought itself back to life once before — but can it again? -- rents are so high in Manhattan, there doesn't seem to be any lack of demand to pay any price to live in NYC....
Goodhart's Law: "When a measure becomes a target, it ceases to be a good measure."
Thanks for reading--
charles |
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