Market Update And A Urgent Request To My Readers

July 15, 2018

What a week I’ve had. Barron’s ceased its internet publication of much of its market data. They still do some in a digital format, but after I called them on Monday morning the really good stuff like the Dow Jones Total Market Groups, BGMI and their Pulse of the Economy are no longer available from the internet. Barron’s ink on paper edition carries not all, but much of what they used to offer on their webpage, except for the DJTMG. That’s a real shame, but it is what it is.

Why would they discontinue this valuable service to the investment public? One reason, the BIG REASON is in past decades the investment public has moved on from personally maintaining the data Barron’s has published for so long.

If one goes to Barron’s dusty old pages from the 1940s and 50s, in its old classified pages, year after year there were always ads for charting paper by several vendors. Before computers were common household appliances, people would chart Barron’s data on paper. I can imagine what that looked like after a few years, but before the introduction of IBM’s PC, that’s what serious and successful students of the market did to follow trends in the market.

After the introduction of the PC, people got lazy and downloaded market data, (pre-digested charts) from market-data providers such as CNBC in their coverage of the markets. Nothing wrong with that, but these sources never offered the detailed data contained in Barron’s old issues going back to the 1920s.

Amazingly, even Barron’s itself didn’t have this data. I know that to be a fact as their statistical department asked me for it, which I was happy to send them. I had hoped they would send out a CD of their old data series to subscribers in Excel format, or make their amazing history of data available to the public on their website for downloading. But management never made the effort to popularize this aspect of their history, which is a real shame.

The following Bear’s Eye View (BEV) chart of the Dow Jones going back to 1885, plotting every bear market bottom and bull market advance of the past 133 years is a real testament of the truly unique place in market history Dow Jones Inc. / Barron’s Financial Weekly commands. From a time when steam locomotives were high-tech, spanning two world wars, the rise and fall of the Soviet Union to today – there is absolutely nothing else like it anywhere on planet Earth.

Today it’s hard finding a chart of the Dow Jones going back to 2000, and good luck finding a chart on the Dow’s earnings and dividend payouts going back ten years. “Market experts” always urge the public to do their “due diligence” before risking their money in the markets. However, when one searches the data available to the public for performing such “due diligence”, it’s slim pickings in today’s world.

That’s why after I retired from the Navy I spent the next few years in college libraries compiling data from old issues of Barron’s, data on Electrical Power Consumption (EP) and antique bond data series’ prices and yields I was happy to share with my readers.

Sometimes public feedback can do wonders. If readers find my articles useful I’d appreciate it if they would contact Barron’s via the link below and ask them to include all market data published in their ink on paper edition on their internet pages, plus resume publishing the Dow Jones Total Market Groups in full on the internet. Any effort on your part to accomplish this will be greatly appreciated.

A specific list of statistics is given at the end of this article.

This week I was wrestling with the aftermath of this momentous catastrophe in my love affair with market data; as most likely will also prove to be the case for the next few weeks as I search to find alternative sources of data to maintain my files. So, if my articles seem not as detailed as they usually are, that’s why.

In my last article (two weeks ago) the Dow Jones closed the week at about -7.5% in the BEV chart below, and I commented whether the Dow Jones broke above its BEV -5% or below its -10% line should tell us how the next few weeks or months should go. As it worked out, last week the Dow Jones appeared to be ready to break below its BEV -10% line. A week later it now is approaching its -5% line.

And what conclusion can we make of this? Last week was as good a week as any for Barron’s to toss a monkey wrench into my market commentary as nothing much has changed since early May. It’s still a hurry-up-and-wait market until further notice.

Here’s the Dow Jones in daily bars, the box contains the past five weeks of the daily ups and downs in the Dow Jones, the same five weeks recorded in my step sum table below. The most noticeable fact of this market is how it’s shed the volatility that plagued it from February to early April. Seeing the Dow Jones approaching its BEV -5% line above, in the bullish-baby steps seen at the far left of the chart below tells me this is a market that could very well see new all-time highs in the next month or two.

I’m not predicting that. I’m just making an observation that this is exactly the market action we should see for that to happen. It could also work out that the last all-time high of January 26th will stand as the last new all-time high for the 09 March 2009 to the January 2018 advance.

But I still don’t like the stock market as its gains since March 2009 are all artificially inflated by massive levels of monetary inflation targeted at financial asset valuations. At some point the bull-market gains seen in the past nine years are going to deflate. Exactly when I haven’t a clue; I just know I want nothing to do with stocks and bonds when Mr Bear returns to claw back from the bulls what the “policy makers” gave them this past decade.

For one thing Mr Bear knows he was cheated during the Credit-Crisis bear market, the second deepest bear market decline since 1885 – as seen in the long-term Dow Jones BEV chart above and table below. Only the Great Depression crash was deeper.

As it was, the Dow Jones on 09 March 2009 suffered from a decline of 53.78% from its last all-time high of October 2007; but it should have been a much deeper decline. I say that using the Dow Jones step sum chart below to justify my claim.

From October 2007 to October 2008 the Dow Jones (Blue Plot) declined by 40% for the first time since November 1974, yet its step sum (Red Plot / market sentiment) refused to follow the Dow Jones down, thus forming a bear box.

It’s no secret the big bulls in the market at that time were FOMC members formulating a scorched-earth (QE) “monetary policy” and Treasury officials promising to blast Mr Bear’s sub-prime mortgage cleanup crew with a multi-hundred billion dollar bazooka. In the years that followed, these proved to be the rare promises that government officials made and then kept.

The bulls (FOMC and US Treasury officials) never had to surrender to Mr Bear, resulting in a collapse in the step sum. Not when Congress gave them a blank check on how much monetary inflation they could “inject” into the financial markets to stop the pain. And so the Dow Jones step sum declined by only 26 net declining days during the entire 2007-09, 54% Dow Jones bear market (chart below).

However, I anticipate the coming bear market to be more like the one the Dow Jones experienced during its Great Depression decline from 1929 to 1932. See Dow Jones BEV chart from 1885 to 2018 above and 1928-34 step sum chart below.

Eighty-eight years ago the bulls, trying with all their might during the Great Depression crash fought Mr Bear’s deflation of share prices as best they could, as seen in the bear box below. Still, at some point the bulls had to surrender to the awesome power of Mr Bear’s deflation. We can see this exact point in time below, after February 1931 market sentiment for the bulls began to collapse in the final phase of the 89% market decline.

By the July 1932 bottom, market bulls became an extinct species on Wall Street. Yet as seen in the chart below, with rebound of the Dow Jones with its step sum in 1932, the market signaled the beginning of a 372%, five year advance that lasted until March 1937; though no one believed that possible in July 1932.

There are many factors contributing to my pessimistic view of the market, that a bear market is pending that will ultimately see a decline MUCH deeper than the -54% seen in March 2009.

First of all stock and bond valuations are bloated with “liquidity” from a decade of grotesque “liquidity injections” from the FOMC. Also, after a decade of easy monetary policy with interest rates driven by “policy” far below where a free market would have had them, balance sheets for governments, corporations , individuals and yes the Federal Reserve itself are weighed down with consumptive debt as we’ve never seen before. This excessive loading of consumptive debt makes the bulls very weak, while making Mr Bear very strong when the market begins its inevitable, pending bear market decline.

And during the past decade, bond yields and interest rates were driven down by “monetary policy” way past any point of prudence, and then kept there for the best part of a decade (chart below).

Come the “big one”, what’s the FOMC going to do with its Fed Funds rate still closer to zero than 5%, and long-term T-bond yields currently 200 basis points below from where they were in October 2007? This state of affairs is one the guys and gals at the FOMC are painfully aware of.

When the worst begins to happen, what are they to do; begin their fourth round of Quantitative Easing as the US Treasury reaches for a multi-trillion dollar bazooka to blast away at Mr Bear? When the pain of collapsing market valuations once again spurs the public to demand action from the “policy makers”, what else can they do?

Damn right they’ll attempt to inflate their way out of a bear market; as they once again practice bear-market interruptus by expanding the Federal Reserve’s balance sheet as America’s central bank upchucks dollars by the trillions into the economy.

But I don’t think this trick is going to work a second time. Ultimately, this final act of “monetary policy” will drive bond yields up into the double digits as capital flight from financial assets flees asset deflation and counter-party failure into the safety of gold, silver and the mining shares. I recommend my reader take their positions before the panic on Wall Street begins.

Let’s look at silver in the red circle below. Everyone knows silver, as has gold and the mining shares have been under great pressure these past few weeks. Yet looking at the past fifty years of price data below I don’t see any panic selling of silver since its bottom in December 2015.

The same can be said for gold in the next chart. I’m keeping in mind Fud’s Law is applicable to the old monetary metals: where if one pushes hard enough it will fall down. As the “policy makers” execute their “gold is never going anywhere but down policy” at the COMEX by flooding the digital gold market with tons of phantom metal, they may yet inspire panic selling in the gold and silver markets.

However I’m impressed that so far they’ve failed to do so, because that is exactly what they are attempting to accomplish – create a selling panic in the gold and silver markets.

In gold’s step sum chart below we see market sentiment (Red Plot / Step Sum) collapsing – suffering from an overwhelming number of daily declines. Yet for all that the price of gold (Blue Plot) may be going down, but the bears are working hard for the scant returns they are seeing. Compare the current (post April) market decline to the selling panic seen in 2013.

Moving on to gold’s step sum table below, I note in the 15 Count’s Daily column, gold’s 15 count has been negative every day since June 8th, losing close to $60 (-3 BEV Points) in the past five trading weeks. This doesn’t make me happy, but how satisfied are the bears that after all this, that is all they could do during the five trading weeks seen below.

One of these days gold will once again enter a market where a preponderance of its daily closing will be positive, as happen with the Dow Jones after June 21st below. Let’s see what happens then. I wouldn’t be surprised if gold then finds it easier to go up than it now finds going down.

Last is my step sum chart for the Dow Jones. The venerable Dow Jones has been in a correction mode since late January, which so far has seen its bottom on March 23rd (a -11.58% decline) and has been working itself higher ever since as its step sum plot closely following the price plot. Is the correction’s bottom in? It could very well be, and with the Dow Jones closing the week only 6% from its last all-time high of last January, it wouldn’t take much to push it to a new all-time high.

All and all, things are looking up for the stock market in Mid-July 2018. Be-that-as-it-may, this is a market that has dark clouds blowing towards it. Rightfully, President Trump is attempting to renegotiate past trade deals that always resulted with huge trade imbalances between the US and our trading partners. Understandably our trade partners don’t appreciate being threatened with tariffs to correct this situation.

Should a trade war begin it won’t be good for stocks and bonds, but I suspect that ultimately it will be for gold silver and their miners.

And again, if you can make the effort to contact Barron’s to request that they include everything they now publish in their ink on paper edition on their web pages I’d really appreciate it. Specifically:

  • The Dow Jones Total Market Groups in their entirety as they did just a few weeks ago

  • The Barron’s Gold Mining Index

  • Their Weekly Bond Statistics

  • The Federal Reserve Data Bank

  • And their Pulse of the Economy

Without this data my future articles will not be as informative as my previous ones. Thanks for any help you can render with an e-mail or phone call to Barron’s, a fine publication which is always happy to hear from the public on how to best serve them. They really are nice to people, as I’ve found in my past dealings with them to be the case.

Mark J. Lundeen

Minting of gold in the U.S. stopped in 1933, during the Great Depression.