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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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Charts show steady investor optimism, more upside for stocks

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The stock market rally that began 2019 has not yet run its course, even with Tuesday’s Washington-induced surge, CNBC’s Jim Cramer said after consulting with technician Carley Garner.

“The signs suggest that this market can have more upside before the rally exhausts itself,” Cramer recapped on “Mad Money.” “Eventually the market will become too optimistic and stocks will peak, but we’re not there yet.”

Garner, the co-founder of DeCarley Trading and author of Higher Probability Commodity Trading, has an impressive track record. In mid-December, one week before the Christmas Eve collapse and subsequent rebound, she told Cramer that pessimism was peaking and stocks were due for a bounce.

But now that the S&P 500 has gained over 15 percent since those midwinter lows, it’s worth wondering the reverse: what if optimism is approaching its peak?

Lucky for Wall Street, Garner says it’s not. She called attention to CNN’s Fear and Greed index, which uses a variety of inputs to measure what CNN sees as investors’ chief emotional drivers.

Right now, the index sits at 67 out of 100, signaling more greed than fear, but still “a far cry from the extreme levels where you need to start worrying,” Cramer explained. When the major averages peaked going into the fourth quarter of 2018, the index hit 90, and according to Garner, “we usually don’t peak until we hit 90 or above,” he said.

Add to that the fact that only half of professional traders and investors polled for the most recent Consensus Bullish index said they felt bullish; the recent downtrend in the Cboe Volatility Index, which tracks how much investors think stocks will swing in the near future; and that, historically, this is a good time of year for stocks; and Garner sees more momentum ahead.

The S&P 500’s technical charts seem to uphold Garner’s theory. Its weekly chart shows fairly neutral readings for two key indicators: a momentum tracker called the Relative Strength Index and the slow stochastic oscillator, which measures buying and selling pressure.

“Even if the S&P 500 keeps climbing to, say, … 2,800 — up 2 percent from here — Garner doesn’t anticipate either the RSI or the slow stochastic [to] hit extreme overbought levels,” Cramer said, adding that the technician could even see the S&P climbing to 3,000 if it breaks above the 2,800 level.

If Garner is wrong and the S&P heads lower, she said it could trade down to its floor of support at 2,600, and if it breaks below that, fall to 2,400. But that scenario is highly unlikely and, if it happens, would be a buying opportunity, she noted.

The S&P’s monthly chart told a similar story, Cramer said. The index is currently trading at 2,746, between its “hard ceiling” at 3,000 and its “hard floor” of 2,428, he said, which means it’s “basically in equilibrium.”

“To Garner, that means going higher is the path of least resistance for the S&P,” the “Mad Money” host said. “Once the S&P climbs to 2,800, or perhaps … to the mid-2,900s, that’s where Garner expects things will turn south and the pendulum will start swinging in the opposite direction.”

“Remember, … Carley Garner has been dead-right, and the charts, as interpreted by Carley, suggest that this market still has some more upside here,” Cramer continued. “But if we get a few more days like this wild one, she thinks we’ll need to start worrying about irrational exuberance. For now, though, she thinks we are headed higher, and I agree.”



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What Jeff Bezos’ private life means for investors

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Daniel Ek, chief executive officer and co-founder of Spotify AB.

Akio Kon | Bloomberg | Getty Images

Daniel Ek, chief executive officer and co-founder of Spotify AB.

Cramer said Wall Street has misread Spotify‘s latest earnings report and guidance, and that misunderstood stocks like these give investors an opportunity to make some money.

he called out stock analysts like Everscore ISI’s Anthony DiClemente who have downgraded the equity over concerns about subscriber growth.

“I think this is lunacy,” said Cramer, who has been bullish on the music streaming platform since it went public last April. “It’s like the market just doesn’t know how to read this company or its quarterly guidance. In my view, Spotify is very much on the right track.”

The stock was rocked after a seemingly mixed quarterly earnings released Wednesday, Cramer said. After Spotify reported lower-than-expected sales, tight cash flow and conservative guidance across the board including subscriber growth, shares sold below $129 at one point in Thursday’s session.

But Cramer noted that the company beat expectations on operating profit and gross margin, which was 120 basis points higher than was asked for.

“I think the sellers were missing a lot of context here and the context is something I like to talk about a lot and it’s called UPOD. They under promise … and then they over deliver,” he argued. “At this point, CEO Daniel Ek and his team have established a track record of giving cautious guidance—under promise—and then beating it—over delivering.”

Spotify’s guidance includes planned investment costs and the company could “become the premier platform for podcasts,” a hot market for hard-to-reach millennials, Cramer said.

Click here to read Cramer’s full take.



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Charts show investors ‘can afford to be cautiously optimistic’

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Investors can afford to be “cautiously optimistic” at this point in the stock market’s cycle, CNBC’s Jim Cramer said Tuesday after consulting with chartist Rob Moreno.

Moreno, the technician behind RightViewTrading.com and Cramer’s colleague at RealMoney.com, sees a convoluted path ahead for stocks. After calling the December bottom, Moreno noticed that the Nasdaq Composite’s late-2018 decline was about a 24 percent drop from peak to trough.

That’s important because, in a bull market, stocks tend to see “periods of consolidation — pauses in a long-term bull run,” Cramer explained. “To [Moreno], the decline here looks very similar to what we saw from the Nasdaq in 2011, 2015 [and] 2016,” three consolidation periods of recent past.

If he’s right, that could be bad news for the bulls, who may have to wait at least seven months for stocks to break out of their consolidation pattern, during which they tend to trade in a tight range, Cramer warned. But Moreno still sees some opportunity for investors.

“If you believe his thesis about the market — that we’re in a consolidation period, one that will last until September — then you can afford to be … cautiously optimistic right now,” Cramer said on “Mad Money.”

Part of Moreno’s confidence came from his analysis of the S&P 500’s daily chart, which also included the support and resistance levels from its weekly and monthly charts.

Even after a 16 percent rally from its December lows, Moreno saw more room to run for the S&P based on its Relative Strength Index, or RSI, a technical tool that measures price momentum. The RSI, he explained, hasn’t yet signaled that the S&P is overbought, and the Chaikin Money Flow, which tracks buying and selling pressure, shows big money pouring in.

“Moreno thinks that these new buyers are the kind of investors who won’t be panicked out of their positions by short-term volatility,” Cramer said, adding that the technician sees about 3.5 percent more upside for the S&P before it hits its ceiling of resistance at 2,818.

But if the S&P manages to trade above its ceiling of resistance and return to its October highs, Moreno expects a “synchronized reversal” in the stock market that could crush the major averages, the “Mad Money” host warned.

“At least until September, Moreno says you should be a seller if the averages approach their October highs — that’s around 2,930 for the S&P 500,” Cramer said. “Eventually he expects a breakout from these levels, but it won’t happen any time soon.”

So, what’s the right move for investors? According to Moreno, not all is lost. He still expects to see strong gains — a roughly 7.5 percent move — before the current rally peters out. But he doesn’t want buyers to get too trigger-happy, especially considering the months of sideways trading he’s predicting for 2019.

“Until [September], he expects the market to trade in a fairly wide range, with the S&P bouncing between 2,350 and 2,930. For now, we’re headed higher, but he says you should use these key levels as entry and exit points until the consolidation pattern finally comes to an end later this year and the averages resume their long march higher,” Cramer said. “Even if he’s right and this rally will lose its steam after another 7.5 percent gain, that’s still pretty good, but I am very wary and it makes me want to do some selling after this run.”



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