Is this the perfect storm for trading? We discuss that and more in this week’s issue of Market Slice! We also give access to a new webinar and free report!
Will your wealth portfolio go down like the Andrea Gail?
You probably saw the 2000 film starring George Clooney and Marky Mark Wahlberg.
The titular storm, which sunk the boat with all hands aboard, was formed by the convergence of three weather fronts.
Each front, on its own, would have caused a storm that could challenge the most able seamen. When all three came together, it spelled doom for the small fishing vessel and its courageous crew.
Today, we are facing a perfect storm of unprecedented proportions in the markets.
While most observers are focused on the equities indexes, where excess liquidity continues to drive a small number of leading names higher despite broad market weakness, that is not where the danger is most pronounced.
Of course, crazy-high stock valuation levels are part of the problem. But left to its own devices, the stock market could well continue to sail along, bolstered by a strong dollar and the ocean of “free money” created by monetary and fiscal policy.
The problem is, overvaluation in the equities markets is not the only storm brewing.
The real crises are more likely to emerge from the bond and commodities markets.
The bond market dwarfs the stock market in size. And in case you haven’t been paying attention, here are a few recent articles pointing out the issues:
Cracks Appear in Global Credit Markets as Investors Dump Assets
Are Corporate Credit Markets Starting to Crack?
Forget a Stock Market Crash, the Bond Market May Collapse First
The problem with the credit – that is, bond – markets, is that rising interest rates are lowering the equity value of bond holdings, while, at the same time, forcing borrowers to pay more to service debt.
One sign of how serious this could be if things go south in a big way was the Evergrande crisis last fall, where the Chinese real estate market appeared to be teetering on the brink of collapse.
What traders sometimes forget is that the Fed does not set interest rates on all bonds. The market does. The widely watched Fed funds rate is only a target, the rate at which the fed suggests commercial banks borrow and lend their excess reserves to each other overnight.
This is why the Fed has had to step in and become the biggest buyer in the bond markets. Without this Fed intervention, there would be a lot more supply than demand… which would push bond prices down. And yields up.
So far, the Fed has only made noises about “tapering” their purchase of bonds in the market. The threats, along with a nominal .25 basis point rate increase, may have spooked the market, But there has not yet been any serious move to reign in inflation, which continues at a very hot pace.
And the market rolls on, ignoring the evident problems.
Storm clouds, however, are darkening the horizon over the bond markets… which should serve as a warning for investors.
Are you prepared for the financial storm of the century? Below the still-calm surface of the investment markets ae serious structural issues that threaten your family’s future. Trading strategies that hedge your investments against sudden market reversals or long-term declines are critical to a balanced portfolio. Call FFR Trading today at (800) 883-0524 and speak with a Strategy Team member. There is no cost or obligation.
What About Commodities?
Overvalued stocks and pressured bonds are two of the “storm fronts” converging in the markets today. The third is commodities,
When President Biden, speaking in Poland last week, warned that food shortages are “going to be real,” the major media barely noticed. However, this somber message could impact the lives of millions around the world, and in the United States.
Food shortages here might mean inconvenience, or, for some, real hunger. But for those in the poorer corners of the planet, it could mean literal starvation.
Combined, Ukraine and Russia account for around 30% of the world’s wheat exports. The war has already constrained these supplies, and continuing tension – whether the shooting end soon or not – are likely to exert a long-term upward pressure on wheat and other grain prices.
This is the 20-year chart for Wheat. Note the huge gap up on the far right… that’s this month’s move, reflecting the outbreak of war. However, wheat has been in a long uptrend, going back to lows made in 2016. The Ukraine invasion only exacerbated an ongoing increase in wheat prices.
Next look at this 3-year chart for Natural Gas. We’ve talked a lot about Crude Oil lately, but of course Nat Gas is another crucial energy commodity, essential not only for heating, especially in Europe, but also for industrial processes, including, critically, the production of fertilizer.
The price of gas has risen from just above 1.50 per unit (million BTUs) in June 2020, at the bottom of the pandemic energy crash, to $5.30 this week. That’s up more than 300%, and higher than at any time since 2014.
Since rising gas prices mean more expensive fertilizer, this is a contributing factor to skyrocketing food prices, as well.
For a deep look at how the “perfect storm” metaphor applies to agricultural markets, read this article from Doomberg.
Finally, let’s take a look at Copper.
Again, the March, 2020 lows – caused by the near-total cessation of all economic activity due to the pandemic – went from 2.1c/lb to 4.7, more than double.
As copper prices go up, so does the cost of everything made with copper… which is just about everything!
Rising commodity prices are fueled by inflation, as more dollars and/or higher demand chase the same amount of goods. This leads to price increases at the retail level, which is called price inflation. This is the direct effect on consumers of inflation throughout the exconomy.
Soaring inflation is why the Fed is under pressure to raise the Fed rate and decrease their market activity. But all this threatens to tank the stock market, which is apparently running on the assumption that the economy is relatively healthy at present.
A major slowdown in the economy could mean a big selloff in stocks.
It really is a perfect storm, and like the Andrea Gail, investors caught unawares may have no way out when the winds really start to blow.
Don’t let the next market crisis catch you off guard. FFR Trading will help you design a trading strategy, with the help of our carefully screened and qualified professional traders, that can protect your wealth and help you prosper in these dangerous times. Call us at (800) 883-0524 or contact us here.
The Tides of Time
Did you catch Lee Gettess’ O-Force Trading System webinar on Wednesday?
In this fascinating live event, Lee explained how, just the tides are controlled by the moon and ocean currents are driven by the sun and the earth’s rotation, market forces operate in ebb and flow cycles.
He calls this the OmniForce Phenomenon — O-Force for short – and has identified it as the market’s “hidden force,” which influences stock market price movements in a very predictable way.
FFR Trading is pleased to present an encore replay broadcast of the webinar.
To view the webinar, just click on the thumbnail here.
Market Slice readers can even receive the same FREE handout that live participants got, a Special Report entitled Lee Gettess on Day Trading. To get your copy, email us at [email protected] with the subject Free Report. We will be happy to send it along.
After viewing the webinar, call (800) 883-0524 to ask any questions or get more details on the O-Force Phenomenon trading system.
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