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Bill Bonner: A memento mori for the bull market

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Thursday, November 1, 2018
All Saints’ Day

I once was what you are, and what I am, you also will be.

Memento mori epitaph from The Holy Trinity, a fresco by Masaccio


From Bill Bonner, Editor, Bill Bonner’s Diary:

POITOU, FRANCE – We came back to France to celebrate the Toussaint with friends and family.

All Saints’ Day is still an important holiday in France. People go to church in the morning, clean the graves of their relatives in the afternoon, and put pots of chrysanthemums on the sepulchers.

We will do the same.

One of our aunts is buried in the local churchyard. She came with us when we moved to France 25 years ago. She greatly admired the French and always wanted to live in France.

Alas, time didn’t wait. She was already in her eighties when we arrived and had previously had a stroke. We doubt that she fully enjoyed it here… She died a few years later.

Unusually Grim

Passing through Paris yesterday, we found the city unusually grim.

It was raining. Maybe the weather affected our mood. But the bars and cafes looked worn and sad. And the sidewalks were littered with slippery leaves.

A blind man made his way, walking in front of us. He had his route well-mapped-out in his mind and swung his white stick from side to side, getting his bearings… and warning others to watch out for him.

But the whole area around Montparnasse is under construction. The familiar landmarks are boarded up. After a few seconds of watching him, we realized he was lost.

“No… you’re not at the crosswalk yet.”

He was about to step off the curb into the traffic. We took his arm and guided him across.

“I’m okay now,” he said, and turned towards the train station.

But he wasn’t okay. There were too many obstacles – cables running across the sidewalk… plywood sealing off side streets and entryways… and makeshift steps leading into the station.

“It’s all changed around here,” we said as we took his arm again, guiding him around a temporary enclosure.

“Yes. I hate it. I never know where I am. I’m always afraid I’m going to be hit by a taxi. They don’t care. They’ll run right over you.”

“Well, there are no taxis in here. You’re in the train station. Right at the entrance to the grandes lignes…”

“Well, then, no problem. I know where I’m going.”

With that, he detached himself, thanked us, and headed toward a turnstile, where a young woman in uniform seemed to take charge of him.

Tout Passe, Tout Casse

This morning, down in the countryside, it is cold and overcast. The warm summer that once was is no more.

We will use this occasion to give a memento mori of our own.

“What’s changed?” we asked our part-time caretaker, Damien. He threw it back at us, giving himself time to compose an answer.

“Well… nothing. Our little town is just the same. Nothing ever changes. Except that people are getting older. Jean-Pierre now can’t walk at all. He was able to get around on crutches until a few weeks ago. Now, he’s in a wheelchair all the time. His legs have swollen up.

“And Claude is still fighting his cancer. I think he’s losing the battle, though. He looked terrible the last time I saw him.”

We were getting an update on our old friends. The news was not good.

“I guess that is the way we’re all going,” said Damien gloomily.

We had the same thought. “Tout passe, tout casse… ” as the French say. Everything breaks down and goes away. Mountains, men, and markets. But not all at the same rate.

Mountains take millions of years to flatten. Man has a shelf life, too – as it says in the Bible, of “three score and ten” (we are hoping to do a bit better)… And as for markets, it depends.

Looking at the long sweep of the stock market, as measured in real money – gold – we see only four major tops and three major bottoms over the last 100 years.

Math whizzes will quickly realize what is missing – another bottom. Every “I am” must be followed by “I was,” and every major top must be followed by a major bottom. Or else, the whole balance of life will be out of kilter.

Desperately Ill

The first major top in stocks, as measured by the Dow compared to gold, came in August 1929. Thereafter, the stock market died… losing 90% of its value, in gold terms, over the next four years.

The next top came a full generation later, in January 1966. And then, just when the stock market seemed at the peak of good health, it fell desperately ill… and drooped and dropped over the following 14 years, wiping out 95% of its previous value – again, in terms of gold.

It took another 19 years for the stock market to fully recover and post a new high – in October 1999. This was the third – and greatest – high of the 20th century, when it took 40 ounces of gold to buy all the Dow stocks.

As usual, commentators proclaimed a “new era.” Thanks to the Information Revolution, they said, this was a stock market that might live forever.

But it was not early in the stock market’s lifecycle. It was late. It had already become what it was… Now, it was ready to fulfill its destiny… by dying.

By the end of 1999, stocks had already begun to sink. Over the next 11 years, they fell, hitting a bottom in September 2011 – with an 85% loss.

From there, well… now, we are in recent history…

Stocks soared and are now at another major top – not as high as in 1999, when compared to gold, but higher than in 1929 and close to the 1966 top.

Could stocks go higher? Yes, of course… Every nursing home has a few old codgers who have surprised the doctors and dismayed the heirs.

Trends tend to go on longer than you expect… and then fall harder and faster than you thought possible.

Who imagined in 1929 – at the peak of the Roaring Twenties – that a Great Depression was coming?

Who foresaw – at the height of the 1960s prosperity – that we would soon be waiting 33 years for stocks to recover?

What sage forecaster knew that the fabulous “Information Age” technology would be a bust?

And today… just in case… we leave you with a warning: What those crashes and depressions were, so will this bubble become.

Buy gold. Sell stocks.

Memento mori

Regards,

Bill

Crux noteBill Bonner is the author of The Bill Bonner Letter – a monthly newsletter. To learn more about The Bill Bonner Letter, and to get access to Bill’s newest research, go right here.


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Retail earnings reports, China trade impact

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CNBC’s Jim Cramer on Friday said he expects more of the same in the week ahead of stock trading.

“Next week, once again, is all about trade and retail,” the “Mad Money” host said. “This is the week when most retailers report, so we will be listening closely to what they say about the trade war.”

Monday: Trade watch

The stock market will confront the same issues on Monday as the week prior. The days following will see a lot of retailers hold conference calls, and Cramer is looking to see what they have to say about tariffs on Chinese imports.

“The market will punish companies that source in China and reward companies that don’t, because that’s what [President Donald Trump] is doing,” he said.

Tuesday: Home Depot, TJX, Nordstrom

Home Depot: The home improvement retail giant reports earnings before the bell. Cramer is expecting weather to weigh on earnings again.

“There’s much too much rain this gardening season, and I bet that hurt them,” he said. “I still believe Home Depot can tell a decent story about trade, but it won’t matter if gardening season, their equivalent of Christmas, turns out to be a bit of a bust.”

TJX: The T.J. Maxx parent delivers its quarterly results to shareholders in the morning.

Nordstrom: The luxury department chain has an earnings call at the end of trading. The stock is down more than 20% this year and more than 27% in the past 12 months.

“At these levels, it pays you a 4% yield. I think it may be too cheap to ignore,” Cramer said.

Wednesday: Lowe’s, Target

Lowe’s: Lowe’s, the main rival to Home Depot, presents its quarterly earnings before the market opens. CEO Marvin Ellison is guiding the home rehab chain through a turnaround.

“Wall Street loves Ellison, though,” Cramer said. “If Lowe’s gets hit, either before or after the quarter, I’d be a buyer of the stock.”

Target: Target comes out with its latest results before trading begins. The stock is about $20 per share off its September high and has a 3.6% yield.

“I know it’s battling both Walmart and Amazon, which might be too much competition for any one company, ” Cramer said. “But I think CEO Brian Cornell’s doing a terrific job. You know what, I like the stock here.”

Thursday: Best Buy, Splunk

Best Buy: The tech gadget store reports earnings in the morning. The stock is up 30% this year, and Cramer is warning not to take a chance on it at current levels.

“I’m betting they’re going to have to talk about tariffs on the whole darned conference call,” he said.

Splunk: The software analytics company, one of Cramer’s “Cloud King” stocks, presents its financial report after the market closes. Cramer expects Splunk to put up a good conference call out of CEO Doug Merritt. He said Merritt continues to deliver on promises.

“I like it a lot. … [It’s got] no China exposure — I say buy,” he said.

Friday: Foot Locker

Foot Locker: The shoe retailer will lay out its quarterly report for investors before stocks start trading. With a presence in shopping centers across the country, Foot Locker carries Nike, Adidas, Under Armour and a range of other sports apparel brands in its stores.

“The stock’s been held back by trade war worries,” Cramer said. “I bet it will prove to be immune, or at least more immune than most people think.”

WATCH: Cramer breaks down the week ahead in earnings

Disclosure: Cramer’s charitable trust owns shares of Amazon.com and Home Depot.

Questions for Cramer?
Call Cramer: 1-800-743-CNBC

Want to take a deep dive into Cramer’s world? Hit him up!
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Questions, comments, suggestions for the “Mad Money” website? madcap@cnbc.com



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Charts suggest markets could soon get a deep correction

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CNBC’s Jim Cramer said Thursday that his colleague is warning that danger could be on the horizon for the stock market.

The “Mad Money” host took a look at chart analysis as interpreted by technician Carolyn Borogen, Cramer’s coworker at RealMoney.com who also runs FibonnacciQueen.com, to understand what could come of this volatile market.

The major U.S. averages were taken for a ride this week as investors attempted to gauge whether the United States would raise existing tariffs on imports from China on Friday. Because of this uncertainty, the best way to get an empirical reading of the market is through studying chart action, Cramer said.

The high-to-high cycles, as explained by Boroden, in the weekly chart of the S&P 500 is cause for concern, the host said.

Highs on the index have ranged between 31 weeks and 36 weeks, and the most recent peak was recorded last Friday, he said. Prior to that, the last major high was set in September, which preceded the stock sell-off in October.

Markets tend to repeat themselves, and because stocks sold off this week after a big run, Boroden thinks there could be cause for concern.

“In fact, she’s looked at a series of previous high-to-high cycles, and what she’s noticed is that there’s a whole confluence of them coming due this month,” Cramer said. “That’s why she’s throwing up a caution flag, because Boroden thinks we might finally get a deep downside correction — even deeper than what we’ve already experienced during hell week.”

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These 6 stocks could make or break the S&P 500’s run

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Call them the Supersized Six.

Microsoft, Amazon, Apple, Alphabet, Facebook and Berkshire Hathaway — six of the most highly valued companies in the S&P 500 — don’t just boast the index’s biggest market caps.

In fact, those six companies are worth about as much as the bottom 290 companies in the S&P combined. Taken together, their market caps total $4.2 trillion, while the bottom 290 S&P companies are worth roughly $4.3 trillion.

It’s fairly common knowledge that the top 50 S&P stocks are worth more than the bottom 450, and it’s not unusual that the market is frequently this “top-heavy,” says Carter Worth, chief market technician at Cornerstone Macro.

But the concentration in these six names is noteworthy, and it could mean trouble for the market, Worth said Tuesday on CNBC’s “Fast Money.”

Considering the influence they have over the S&P’s direction, it makes you wonder: “Is it an index, or is it a few big names that drive everything?” Worth said. “That’s what makes beating the index so hard.”

He called attention to this chart tracking the six-stock basket against its 150-day moving average, as well as the number of times it has traded above or below that average.

“Literally, every single time we have gotten this far above the 150-day moving average, we have peaked. It is right at that level yet again,” Worth said, pointing to the uptick in the bottom panel’s trend line. “So, as this goes, so goes the market. I think you’ve got a crowding that’s not so good. Just to put it in real context, think of those six names relative to the S&P. It’s all so dependent on these big names.”

Moreover, while the market’s “heavy hitters” have made up 15% of the S&P’s total market cap, on average, since at least the 1990s, that percentage is also ticking up, Worth noted.

“We’re starting to get back to a level that is typically indicative of when markets peak. That’s ’07, so forth and so on,” he said. “None of this is particularly healthy.”

By market cap, Microsoft is worth about $963 billion, Amazon is worth $949 billion, Apple is worth $969 billion, Facebook is worth $540 billion, and Berkshire Hathaway is worth $515 billion.

The broader market mounted a recovery Wednesday, with the S&P lifting off its Tuesday lows early in the session.



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