January 2025 DDD

[DannyB0000]

Australians invest record amount in Wall Street as analysts warn 'at some stage the music will stop' - ABC News
https://www.abc.net.au/news/2025-01-07/australians-investing-wall-street-analysts-warning/104789944

Super funds drain cash piles to go all-in on frothy markets

Australia’s multitrillion-dollar pension pool is the most bullish it’s been on stocks in over 10 years, leaving little room for error should markets go south.

www.afr.com

Sounds like euphoria and irrational exhuberance just with US stocks.

 

[divs4ever]

Australians invest record amount in Wall Street as analysts warn 'at some stage the music will stop' - ABC News
https://www.abc.net.au/news/2025-01-07/australians-investing-wall-street-analysts-warning/104789944

Super funds drain cash piles to go all-in on frothy markets

Australia’s multitrillion-dollar pension pool is the most bullish it’s been on stocks in over 10 years, leaving little room for error should markets go south.

www.afr.com

Sounds like euphoria and irrational exhuberance just with US stocks.

not me , i would rather look in India and Indonesia ( and South-East Asia )


i haven't crunched the numbers but IF i invested in a US stock it would be Qualcomm ( if it is still going )

but nah Asia for me ( even the ASIA ETF which i hold 'free-carried' .)

now IF you really must play in China look at CNEW ( i don't hold ) lots of smaller Chinese tech companies ( and US bans/tariffs looming )

 

[ducati916]

well Trump is well known for his bluster ( some call it bullying ) but he does get some deals done , but usually at some mid-point compromise

the problem is .. just how much trouble is the US actually in ,

official data has been questionable for years , so will the fudging continue or will we see glimpses of the truth ( as an excuse for extreme/emergency measures , )

now i am NOT US-focused although a crashing US market will affect some holdings , anyway

but even though i am less exposed to the US than many i still expect some contagion

studying the GFC in hindsight ( 'cos i had really important stuff happening at that time , so wasn't watching at the time ) my observation suggests the market went to cash ( ideally US dollars ) first .. and then other investments got some positive momentum ( like the precious metals ) as those who had reduced their debt levels exploited the cheaper prices

given recent events will the 'rush to cash' ( US dollars ) be as strong this time , some already have cash on the sidelines , and some will be avoiding US exposure ( like the Russians and Iranians )

In Her Last Official Act, Yellen Warns US Will Hit Debt Ceiling One Day After Trump Inauguration​

In Her Last Official Act, Yellen Warns US Will Hit Debt Ceiling One Day After Trump Inauguration | ZeroHedge

ZeroHedge - On a long enough timeline, the survival rate for everyone drops to zero

www.zerohedge.com

The US is in MASSIVE trouble.

So JC's charts that I posted yesterday indicate or suggest that this is a bull market. That all is well. Nothing could be further from the truth. Exactly like in 1969, 2000, 2008, 2020, the signs and the FACTS are present, to indicate that there are some really serious issues that the market has definitely not priced in.

So Yellen's issue is definitely one of them. It ties into this debacle in the following way:


So expenses are rising. Receipts are falling.

The difference comes from where?

To date:



Which as you can see is almost drained.

What is left is:



This is how Yellen worked due to Powell, who hates her guts, continuing to shrink the money supply via Fed QT.

Worse than projections of fewer rate cuts is a constantly shrinking money supply: Powell continues to reduce the Fed’s balance sheet by $20 billion per week. Since Silicon Valley Bank was bailed out in early 2023, the Fed’s balance sheet has fallen $1.9 trillion, from $8.7 trillion to $6.8 trillion, a reverse QE that should be slaughtering stocks and credit markets. The reason the market is still frothy is that, also in 2023, Janet Yellen discovered that the Treasury could do its own stealth QE to counter balance the Fed.

To explain: Powell printed $5 trillion in response to COVID, but he also offered banks an above-market interest rate for them to deposit funds directly at the Fed’s reverse repo facility, attracting $2.3 trillion that remained out of circulation. Yellen figured out that, whereas banks and money-market funds would never withdraw overnight funds from the Fed to buy, say, a 10-year Treasury bond, they would do so to buy 3-month Treasury bills if the yield were slightly more attractive.

Normally, the Treasury raises between 15% and 20% of the money required for federal government deficit spending by offering short-term Treasury bills (maturities less than a year), the remainder in longer-term notes and bonds. But in Q4 2023, Yellen financed the deficit with a mix of 60% bills; in Q1 2024 it was 57% bills, and 34% in Q3 2024.

This massive bill issuance increased supply well beyond market expectations, lowering prices, and raising short yields enough to draw cash out of the Fed: the reverse repo cash facility plunged from $2.3 trillion in April 2023 to $178 billion on January 10, 2025 or $200 billion more than the Fed’s balance sheet runoff. Yellen’s policy also had the effect of issuing fewer long-term bonds than expected, which supported their prices, creating artificially lower rates in the 10-year bond, which is the reference point for mortgages and other long-term credit.

Now Trump’s anointed Treasury Secretary Scott Bessent must decide how to roll the $6.7 trillion in Treasury bonds coming due in 2025. He is well aware of the problem, having written about it in his investor letter dated January 31, 2024:

We believe that the Treasury had become uncomfortable with the bond market sell-off to date and the tightening of financial conditions that resulted. As such, even though it would be more expensive to fund via Treasury bills given the deeply inverted yield curve, the Treasury decided it was a price worth paying. Over the short-term, this change in issuance strategy has had the desired effect, with financial conditions easing materially since the November 1 announcement. However, over a medium-term horizon, we believe this is a risky strategy, and it comes with significant costs. In addition to a higher interest expense, concentrating issuance in short tenors exposes the Treasury to greater volatility via refinancing risks and creates the potential for a financial accident.

If Bessent reverts to standard Treasury practice, issuing only 15%-20% in bills, the 10-year financing reference rate will drift higher, and a falling short-term rate risks enticing money back into the Fed’s reverse repo facility, sending a tightening shock through markets and the economy. Even if he were to continue Yellen’s policy, she has timed it such that the reverse repo facility is drained—the Treasury no longer has much ability to neuter the Fed’s balance sheet shrinkage.


Yellen also left this stink bomb for the new administration—in a letter to Congress dated December 27, she wrote, which is where the Zero Hedge article comes in:

As you know, the debt limit is the total amount of money that the United States government is authorized to borrow to meet its existing legal obligations, including Social Security and Medicare benefits, military salaries, interest on the national debt, tax refunds, and other payments. In June 2023, the Fiscal Responsibility Act of 2023 was enacted, suspending the debt limit through January 1, 2025…Treasury currently expects to reach the new limit between January 14 and January 23, at which time it will be necessary for Treasury to start taking extraordinary measures.

As a reminder, the Trump administration begins on January 20. And, just to make it more fun for Bessent, Yellen is spending down the Treasury’s cash account at the Fed, which has fallen from $842 billion on November 6 to $652 billion as of January 10.

Just as Trump takes office, the main sources of liquidity are going into reverse: short rates will be higher than expected as Powell turns hawkish, long rates will rise due to federal financing needs and also because of the need to address Yellen’s abnormal maturity mix, the money supply will shrink because there is no more ability for the Treasury to undo Powell’s balance sheet runoff, the money supply will shrink faster if funds start moving back into the Fed’s reverse repo facility.

So exactly like in 2008 when 'everyone' knew that the teaser mortgage rates were going to reset higher, everyone knows that rates need to reset due to the tsunami of debt, $7 trillion that needs to be rolled over, yet, the market continues to power higher.

There are a few reasons underpinning:

(i) Passive flows are insensitive to market conditions, valuations or anything;
(ii) Stock buybacks to offset Option issues to the C-suite
(iii) Capitulation of Short Sellers, Jim Chanos, this week Hindenberg, pretty much every short seller of note.


JC's warning sign, although he did not pitch it as a warning sign, rather he poured scorn on them:




These are not individuals, these are larger players pulling out. Buffett cleaned house at the end of last year.

We are in a massive, multi asset bubble. Bubbles do not end well. But going short a bubble too early is also fatal. Therefore, currently, you have to be long. But long with such a light touch that you can exit or reverse very, very quickly.

jog on
duc

 

[ducati916]

Using RRG

• Energy replaces Technology in top-5
• Financials rise to #2 position pushing XLC down to #3
• Top-5 portfolio out-performs SPY 0.52%
• A closer look at the (equal) weighting scheme

Energy Replaces Technology​

At the end of this week, 1/17/2024, the Technology sector dropped out of the top 5 and will be replaced by Energy. The ranking in the top 5 has also changed. XLY is still number one but XLF raised to the #2 spot, pushing XLC down to #3.

XLI rose to #4 and, as said, XLK dropped out of the top 5 to #6 while XLE moved up to the #5 spot entering the portfolio.

1. XLY - Consumer Discretionary
2. XLF - Financials
3. XLC - Communication Services
4. XLI - Industrials
5. XLE - Energy
6. XLK - Technology
7. XLU - Utilities
8. XLRE - Real Estate
9. XLP - Consumer Staples
10. XLV - Health Care
11. XLB - Materials

I started adding the ranking for all sectors so it will be easier for us to monitor which sector or sectors are picking up and make a chance to enter the top 5.

Weekly RRG​

On the weekly RRG, XLY, XLC, and XLF remain firmly on the right-hand side of the graph despite their loss of relative momentum, which is causing the tails to roll over.

XLI has now crossed over into the lagging quadrant while XLE has started to hook back to the right on the edge of the lagging and the improving quadrants. The Technology sector remains inside the improving quadrant but is not able to make a real push for leading.

Daily RRG​

The bigger shifts become visible on the daily RRG. XLE shoots into the leading quadrant while Technology moves opposite and enters the lagging quadrant. Combining these moves with the weekly RRG has caused the switch of positions for these two sectors.

The improvement of Industrials and Financials has pushed them up in the ranking while the weakness of Communication Services led to a drop, while still inside the top 5.

The strength of Consumer Discretionary remains, mainly from its strong position on the weekly RRG. The curling up of the daily tail will only help the sector remain inside the top 5.

Consumer Discretionary​

The strong move higher this week could well establish a higher low and confirm the existing uptrend. Despite a small loss of relative momentum, with the green JdK RS-Momentum line dipping, the RRG lines remain firmly above 100, keeping the sector inside the leading quadrant.

Financials​

This week's strong move higher took XLF back above the rising support line which it threatened the last few weeks. The higher low is now in place and the raw RS-Line got a push in the back and bottomed out around the breakout level from the sideways range.

Communication Services​

This sector held up well but is still back inside the boundaries of the rising channel. I am not the biggest fan of such moves but stepping aside and looking with a fresh eye this may well evolve into a flag-like pattern. Following the RRGv1 strategy, this is still one of the stronger sectors.

Industrials​

Price bottomed out exactly against the rising support line after completing a small bottom formation. It now has plenty of upside room within the rising channel, and the RS line has put in a higher low, albeit shallow.

Energy​

The Energy sector is the new kid on the block. On the price chart, XLE jumped from the lower boundary and is now underway to horizontal resistance around 98.50.

The raw RS-Line remains within the boundaries of its declining channel, keeping the weekly tail on the left-hand side of the RRG plot. The recent strength in the sector pushed the daily tail deep into the leading quadrant, far ahead of all other sectors. The combination of weekly and daily tail positions pushed XLE above XLK, entering the top 5 portfolio.

Performance​

The performance of the best 5 sectors at the end of last week was 2.73% vs. SPY 2.21% (measured against the start of this experiment), hence a 0.52% outperformance. I will update the portfolio, adding XLE and removing XLK, against the opening prices of next week (which will be Tuesday!!!).

A note on weights​

So far I have used equal-weight positions for this portfolio of the best 5 sectors. But while doing more research and running more tests I realized that that is not the correct way to do it.

Don't get me wrong, the strategy works and the outcomes using equal-weight positions are historically positive, but there is a flaw.

This is best explained using the technology sector as an example. At the moment XLK makes up 31.6% of SPY.

So when I add XLK to the portfolio at 20% I am still UNDERWEIGHT 10% against the benchmark. In other words, when XLK is in the top 5, meaning it is one of the best 5 sectors, in the portfolio I am still 10% behind the benchmark and XLK is not able to contribute to the performance as much as it should.

On the other end of the spectrum is XLRE at 2.1% of the benchmark. So when I add that sector at 20% I am almost 10x overweight.

Compare that to the 10% underweight for XLK, and it's not hard to understand that such a weighting scheme causes all kinds of shifts in this strategy's risk-reward profile.

For now, I'll continue with the equal weight scheme while working on a more dynamic weighting scheme based on the benchmark weights of the sectors that made it into the top 5.

Have a great weekend and #StayAlert. This week's article is coming from Tampa, FL where I attended the CMTA mid-winter retreat. Next week I will be working from the Stockcharts.com office in Redmond, WA --Julius

---

jog on
duc

 

[mullokintyre]

The US is in MASSIVE trouble.


We are in a massive, multi asset bubble. Bubbles do not end well. But going short a bubble too early is also fatal. Therefore, currently, you have to be long. But long with such a light touch that you can exit or reverse very, very quickly.

jog on
duc

Dan denning has written on a similar vein to Duc above, focusing on the perfidy of Janet Yellen. Politics in the US are so poisoned that each change in admin sees the outgoing ba$tard$ making as much difficulty as possible for the incoming ba$tard$ as possible, even if it is bad for the US economy.
Mick

Around the time I published my weekly research note to paid subscribers about the coming ‘day of reckoning’ for the US dollar (The Dollar Frontier), US Treasury Secretary Janet Yellen committed one last act of fiscal sabotage before leaving office on Monday. Yellen sent a note to members of Congress stating she had begun to take ‘extraordinary measures’ to prevent the US government from defaulting on its debt.

The measures don’t seem all that extraordinary. The government will temporarily suspend the funding of retirement benefits and pensions for civil servants and postal employees. But if the government wants to issue new debt, it will have to remove the debt limit it hit on January 2nd. This sets up a fight between the new President and Democrats in Congress.

Yellen said the new measures will begin Tuesday, January 21st, the day after Donald Trump’s inauguration. She added this:

‘The debt limit does not authorize new spending, but it creates a risk that the federal government might not be able to finance its existing legal obligations that Congresses and Presidents of both parties have made in the past. I respectfully urge Congress to act promptly to protect the full faith and credit of the United States.’

Is the moment of truth?

The day of reckoning for the dollar?

In every other past debt ceiling crisis, the debt ceiling has been raised and Washington has continued to spend money out of an empty pocket. The only difference, this time, may be that the debt ceiling itself is completely removed as a barrier to new spending (it’s not a very effective barrier, clearly).

The bigger story to watch will be whether a strong US dollar continues to draw capital into big cap US tech stocks like a magnet, driving US stocks to even higher historic valuations. US stocks are worth a combined $60 trillion, over 200% of GDP— or ‘strongly overvalued’ according to Warren Buffett’s famous ratio.

If the dollar weakens—because of a debt crisis, because of interest rate cuts by the Fed, or because of a negative market reaction to Donald Trump’s tariffs—this could lead to a sudden and large correction in overvalued US stocks. Be prepared for anything.

 

[DannyB0000]

Dan denning has written on a similar vein to Duc above, focusing on the perfidy of Janet Yellen. Politics in the US are so poisoned that each change in admin sees the outgoing ba$tard$ making as much difficulty as possible for the incoming ba$tard$ as possible, even if it is bad for the US economy.
Mick

Around the time I published my weekly research note to paid subscribers about the coming ‘day of reckoning’ for the US dollar (The Dollar Frontier), US Treasury Secretary Janet Yellen committed one last act of fiscal sabotage before leaving office on Monday. Yellen sent a note to members of Congress stating she had begun to take ‘extraordinary measures’ to prevent the US government from defaulting on its debt.

The measures don’t seem all that extraordinary. The government will temporarily suspend the funding of retirement benefits and pensions for civil servants and postal employees. But if the government wants to issue new debt, it will have to remove the debt limit it hit on January 2nd. This sets up a fight between the new President and Democrats in Congress.

Yellen said the new measures will begin Tuesday, January 21st, the day after Donald Trump’s inauguration. She added this:


Is the moment of truth?

The day of reckoning for the dollar?

In every other past debt ceiling crisis, the debt ceiling has been raised and Washington has continued to spend money out of an empty pocket. The only difference, this time, may be that the debt ceiling itself is completely removed as a barrier to new spending (it’s not a very effective barrier, clearly).

The bigger story to watch will be whether a strong US dollar continues to draw capital into big cap US tech stocks like a magnet, driving US stocks to even higher historic valuations. US stocks are worth a combined $60 trillion, over 200% of GDP— or ‘strongly overvalued’ according to Warren Buffett’s famous ratio.

If the dollar weakens—because of a debt crisis, because of interest rate cuts by the Fed, or because of a negative market reaction to Donald Trump’s tariffs—this could lead to a sudden and large correction in overvalued US stocks. Be prepared for anything.

Should the FED have to start hiking interest rates again due to spiking inflation, I predict the US will end up defaulting on its debt for the first time in history, I see that happening if the Americans end up with stagflation, like what happening during the 1970's. In June 1981, Paul Volcker(Fed chair) had to raise interest rates to 20% to get stagflation back under control. If that happened again, it would be armageddon without the nukes for the Stockmarket and the ecomony.

 

[ducati916]

So this 'market' has 2 camps: the technical chaps as exemplified by JC and the macro-fundamental chaps.

A further example from JC:

This is a bull market for stocks. If you're not making money in this environment, then you should probably reevaluate your strategies. I know for a fact that I've witnessed individuals, who are clearly mentally ill, fight this historic rally pretending that there's some kind of epic credit crisis coming any day now (for over 2 years lol). Whether it's fake breadth deterioration, or the "yen carry trade", or lies about Gold sending some kind of warning, or the Fed ruining everything, or small-caps underperforming, or Trump and his Magas. It's always something. These people will make up anything in their heads, no matter how outrageous, in order to justify poor decisions. Their egos are too fragile. Good. It might be a little sad to have to watch them ruin their lives. But it's great for us who recognize their vulnerabilities and have chosen to just profit from it all instead. You see, when I hear credit crisis, I naturally look at credit spreads to see what's going on. The answer is: NOTHING. Still nothing... Credit spreads are as tight as they've been this entire bull market:

​

If there is stress in the stock market, you're going to see it in credit. It's just math. The Bond market is more than twice the size of the U.S. stock market. So if there is going to be pressure on stocks, it will show up in Bonds. It has not. This week I was running around various cities in the northeast talking with smart folks about markets. It was a very successful trip. More on that soon. But on Thursday I was in New York City with Josh Brown and Michael Batnick on the number 1 podcast in Finance: The Compound & Friends. If you're interested in how we're navigating the bull market, this is an episode you're not going to want to miss:

​

Josh and Michael are old friends of mine. I've had a front row seat to all their success. And they've been there rooting for me all along as well. This was a ton of fun. Lots of laughs. And we discussed some really important market developments.

What is the message of gold?

This second cold war with Russia, which Clinton stumbled into in 1999, has been growing hotter over the years. First there was NATO expansion. Then there were the U.S.CIA bases in Georgia that oversaw jihadist forays into Russia, which prompted directRussian military intervention. Recall that a U.S. official admitted: “At best Georgia would win, in which case Russia would fall apart, and at worst the spectacle of Russia crushing little Georgia would reinforce Russia’s reputation as the cruel Goliath. So Cheney was telling Misha [Saakashvili], ‘We have your back.’”

Then there was the CIA-orchestrated coup in Ukraine, an attempt to move that country from being a buffer state to being in the U.S. orbit. Then the provocation to invite Ukraine to join NATO, pushing the U.S. military right to Russia’s frontier. And now the U.S. is blurring the lines between supporting a proxy and being in direct conflict with Russia: the U.S. is not only delivering weapons but also directly assisting Ukrainians in strategic planning and missile targeting, perhaps more.

The U.S. relied on the Fed to finance previous wars. In World War I, the government altered the new Federal Reserve’s charter—which originally constrained it from financing anything other than bills with maturities at the time of discount of not more than ninety days—to allow it to finance long-term government war bonds. During WorldWar II, the Fed adopted the policy of purchasing all Treasury bills offered at a fixed rate of 3/8 percent: its holdings of government securities leapt from $2.2 billion in 1941 to$23.7 billion by the end of 1945. The Fed continued this policy during the Korean War with a cap of 2.5% for long-term bonds.Not surprisingly, all three episodes experienced soaring consumer inflation, which peaked at 20% in 1920, 20% in 1947, and 10% in 1951.

But there was a major difference between those episodes and today: the U.S. was a solvent nation at the outbreak of these previous wars. In 1949, even after World War II and Franklin Roosevelt’s profligate spending, the Fed’s balance sheet was backed 51% by gold (down from 84% in 1941).Today at spot prices (assuming the gold on the Fed’s balance sheet is real), that figure is 8.8%.

Back to the present: Nouriel Roubini published a paper in July that estimates that Yellen’s strategy which he names “activist Treasury issuance (ATI)” “has reduced 10-year yields over the last year by roughly a quarter of a percent, providing similar stimulus as a one-point cut in the Fed Funds rate, the central bank’s primary policy tool.” This is one reason why the markets have not collapsed despite the sharp increase in interest rates. Even if ATI is cushioning the markets, the economy is beginning to sour. The Fed’s mandate is to keep both inflation and unemployment low, but the July 31 FOMC statement added the line: “The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate.” There is a word for high unemployment occurring in context of high inflation: stagflation.

If we are living through a repeat of the 1970s—and the parallels seem so perfect—we should not expect a cataclysmic collapse of the stock market despite the ridiculous valuations. Stocks would, instead, lurch higher and lower within a trading range for thenext decade, ending at roughly the same nominal price but worth 90% less.Gold, on the other hand, will reveal the carnage. It rose twenty-four fold from 1971to 1980. The way we look at it, gold went from being 12% of the Fed’s balance sheet to133% in the final dollar panic. Gold currently represents just 8.8% of the Fed’s assets, soit would need to jump 36% to $3,300/oz just to get to the 1970 low.

That outcome comes with a caveat: that the Fed either voluntarily or under the coercion of Congress, does, implement YCC. If it does not, then initially at least we move to a 1930's scenario which is actual default. In a deflation, not a dis-inflation, stocks will collapse that 90% in value. At that point, any administration in power, Trump etc. will fall and you are looking at a potential civil war in the US.

In that scenario, the reverberations around the world's financial systems, due to the interlocked network effects, will crash all markets and economies.

So JC is correct: currently credit spreads are showing a green light, stocks to move higher.

So we know exactly where that 'liquidity' has originated: from the Fed Reverse Repo after Yellen switched to financing the deficits with short term Bills and finally the TGA.



She has kept the lid on.

The US political situation is now so dire due to partisan politics, it has to be asked whether the 'debt ceiling', usually political theatre, actually poses (this time) a systemic risk? Does the Trump administration have the numbers to pass a new debt ceiling without some support from the Democrats?

If he does not, then we start looking at actual default.

How quickly would such a default take before contagion? I'm guessing hours to days. We had a glimpse on 1 August 2024 with the Yen Carry trade at which the speed things could collapse. A US default would be many magnitudes higher and faster. Your credit spreads would go from zero to hero in minutes, maybe even seconds.

The Soviet Union inadvertently created the Eurodollar system in the 1950s when it found itself with U.S. dollars and convinced European banks to accept dollar deposits. European banks then started lending out Soviet dollars, and the fractional reserve system meant they could expand that lending well beyond the quantity of raw dollars on deposit. When the Bretton Woods gold-backed dollar standard collapsed in 1971,Kissinger convinced the petro-states to recycle their profits into dollar deposits both at U.S. and non-U.S. banks, expanding the dollar debt system. Suddenly, all the major players in the world owed each other dollars, granting the Fed control over the global economy and the U.S. Congress a method to extract seigniorage to support the costs of empire.

Putin understands very clearly the issues:

By stealing Russian assets, they will take one more step towards destroying the system that they created themselves and that for many decades ensured their prosperity, allowed them to consume more than they earn, and attracted money from all over the world through debts and liabilities. Now it is becoming clear to all countries, companies and sovereign wealth funds that their assets and reserves are far from safe, both legally and economically.

And anyone could be the next in line for expropriation by the United States and the West, those foreign sovereign wealth funds could also be the one.There is already a growing distrust of the financial system based on Western reserve currencies. There has appeared a certain outflow of funds from securities and bonds of Western countries, as well as from some European banks, which were until fairly recently considered to be absolutely reliable to put capital in. Now gold is also being taken out from those banks. And this is the right thing to do.”



This is why you want to own gold and own it now. Physical, not paper.

jog on
duc

 

[ducati916]

For next week:

​

​ ​ ​ Good Morning, Last weekend's Barron's had an article citing the fascinating results of a study from Arizona State professor Hendrik Bessembinder. In a recent paper, Bessembinder studied the performance of more than 29,000 stocks from 1925 through 2023 and found that most stocks lost money over time and that a small number of stocks are responsible for the majority of the market's long-term gains. Looking back at stocks with a minimum of 20 years of returns, the study found that Nvidia (NVDA) had the greatest annualized compound return, which should surprise no one. Looking further back, though, of the stocks that have been around since 1925, the three with the biggest gains were Altria (MO), Vulcan Materials (VMC), and Kansas City Southern (KSU). All three have generated annualized gains of over 14% (table below is from the paper). When you think of the market's biggest winners over the last 100 years, would you have ever guessed the trio would include a tobacco company, an asphalt company, and a railroad? It's hard to imagine a sector of the economy that has been more out of favor in recent decades than tobacco. Given its addictive nature and how popular it was for most of the last 100 years, though, Altria's strength makes more sense. When it comes to Vulcan (VMC), it doesn't get less sexy than asphalt. Still, as the auto industry exploded over the last century, especially after WWII, and more Americans moved out of cities and into suburbs, none of it would have been possible without a company like Vulcan laying pavement. Just as networking companies have facilitated the movement of data around the internet since the late 1990s, companies like Vulcan and even Kansas City Southern can, in some ways be thought of as the networking companies of the physical economy of the 20th century. When the same study is conducted in 2125 looking at the best-performing stocks since 2025, will NVDA be as exciting as a tobacco or asphalt company is now? If not, which companies of today will end up as the leaders of the next century? ​ ​

From the Compound:

​

Picking stocks that outperform the market is hard. Riding them through the ups and the downs is even harder.​

Holding onto big winners in the stock market is difficult because the temptation to book gains is real. We all know how bad it feels to ride a monster only to see gains get cut in half.​

If you’re a stock picker, then there is a 100% chance that you’ve had some stocks that you held onto for too long. Assuming that’s the case, then you have that in the back of your brain at all times, constantly telling you to not be greedy. At the same time, you don’t want to sell too early and leave money on the table.​

Holding stocks on the way up isn’t easy, but holding them on the way down is even harder. When a winning stock falls, you’ll inevitably feel like, “Ugh I’m a greedy idiot. Why didn’t I sell before? Should I sell now? How low is this going to go?”​

Josh opened the show this week by talking about holding big winners. 10 baggers and the such. How much of this is luck, and how much of it is skill?​

Obviously, there is a degree of luck involved, but does it take skill to watch your stock get cut in half multiple times along the way to massive gains? I’m not sure “skill” is the word I would use. I would say a strong stomach and mental backbone, for sure. I would also say, and I really don’t mean for this to sound insulting, even though I know it will, that it takes a certain naivety about how the market works. I would say that non-finance professionals are, I don’t know, 10x more likely to buy and hold a massive winner than somebody who works in the industry.​

Here’s why I say that. People who work in or around finance are more likely to know how unlikely it is that they’ll pick and hang onto the next Apple or Nvidia. We’re also less likely to view the market as a casino than retail investors are.​

We can’t ride big winners because we know too much. I’m mostly sorta kidding. Here’s a story that I think is a decent analogy.​

A husband and wife are at a casino. The husband is well-versed in gambling. He knows when to hit, when to split, when to raise, etc. The wife has never played before.​

After an hour, she comes over to him. He asks, “How’d you do?”​

“I lost $200 playing slots. What about you?”​

“How’d you lose $200 playing slots????”​

“I don’t know. Is that bad? How did you do?”​

“I lost $2,000.”​

“You lost 10x more than me, and I’m getting crap for it?”​

“Yeah, but I know how to gamble!”​

I don’t think I’ll ever get a 10-bagger. I know too much. I read a piece from J.P. Morgan back in 2014 that’s been cemented into my brain.​

“More than 40% of all companies that were ever in the Russell 3000 Index experienced a ‘catastrophic’ price loss,’ which we define as a 70% decline in price from peak levels which is not recovered.”​

One out of every four stocks has a monster decline from which they never recover. Yeah, no thanks. But there are giant winners. I mean, obviously. So, how likely are you to catch one? JPM says that “7% of companies generated lifetime excess returns more than two standard deviations over the mean.”​

​ ​

All of these excess returners, with a handful of exceptions, I’m sure, have had multiple monster drawdowns. I mean, look at Apple, for example. It's probably the most widely held 10-bagger ever. Apple’s total return over the last decade is 875%, so close enough.​

Now this could cause some crazy moves. It may not, but with the market closed for MLK day and the inauguration on the same day...



Now that does not fill me with confidence.



Point State with SPY PUTS? LOL.



LOL.



Interesting.

Major earnings next week:




jog on
duc

 

[ducati916]

jog on
duc

 

[ducati916]

Oil News:

On his first day in office, US President Donald Trump signed an executive order to withdraw from the Paris Climate Agreement and instructed the Energy Department to lift the government freeze on new LNG export permit applications.

- By revoking the 2021 Biden electric vehicle mandate, albeit not legally binding with its 50% target by 2030, Trump hinted at a potential end to EV tax credits in the country and stated he would seek the repeal of California’s EPA waiver.

- Just as US crude oil inventories excluding the Strategic Petroleum Reserve fell to their lowest since April 2022, a mere 412 million barrels, President Trump pledged to fill US stocks ‘back to the very top’.

- Whilst refraining from introducing 25% tariffs on Canada and Mexico on Day 1 of his tenure, Trump nevertheless signaled potential punitive measures as soon as February 1.

Market Movers

- London-based mining giant Glencore (LON:GLEN) has publicly admitted that it is open to M&A transactions that would create value for its shareholders, failing to finalize its copper merger with Rio Tinto.

- UK oil major BP (NYSE:BP) is reportedly close to finalizing a deal with Iraq over the redevelopment of fields in the Kirkuk region, aiming to restart some 300,000 b/d of production, with most commercial terms agreed.

- The world’s second-largest miner Rio Tinto (NYSE:RIO) plans to create a standalone lithium division after it completes its $6.7 billion acquisition of Arcadium Lithium, expected to take place by July 2025.

Tuesday, January 21, 2025

All eyes were on Donald Trump as the 45th US President was sworn in again as the 47th, sending a flurry of confusing messages to oil markets. Bullish catalysts ranged from slapping sanctions on Canada, rescinding Chevron’s Venezuelan waiver, and filling up the SPR right to the top. On the other hand, the strengthening US dollar could offset some of those pressures. The immediate market reaction to Trump’s orders was nevertheless more bearish, with ICE Brent dipping to $78.50 per barrel.

Trump Declares National Energy Emergence. US President Donald Trump declared a ‘national energy emergency’ to expedite the permitting of oil, gas, and power projects, seeking to lower energy prices in line with his campaign promise of cutting prices by 50% in his 12 months in office.

Houthis Promise to Attack Less in Red Sea. As the Israel-Gaza ceasefire seems to be holding since Sunday, Yemen’s Houthi militias vowed to limit their attacks on commercial vessels to Israel-linked ships, no longer targeting US or British-owned tankers, potentially offsetting soaring freight costs.

Libya Auctions Blocks to Fill State Coffers. Libya’s acting oil minister Khalifa Abdulsadiq said that Libya would need between $3 billion and $4 billion to increase its oil production to 1.6 million b/d, the pre-2011 Civil War target level, pinning great hopes on Tripoli’s upcoming onshore licensing round.

Iraq Tries One Last Time to Restart Flows. The finance committee of Iraq’s federal parliament has approved a 2025 budget amendment that would allow Baghdad to pay $16 per barrel for crude produced in Kurdistan, paving the way for a potential settlement with the breakaway region.

Canada Mulls Expansion of TMX Capacity. The operator of the 890,000 b/d Trans Mountain Expansion pipeline is considering expanding its capacity in the next 4-5 years as the threat of US sanctions makes TMX the only non-southbound evacuation conduit, expected to be full by 2028.

US Gasoline Eases as Colonial Pipe Restart. One of the key product arteries of the United States, Colonial Pipeline’s Line I which transports gasoline from the Gulf Coast to Greensboro, NC, resumed operations this past weekend after being offline since January 14 due to a leak in Georgia.

Chinese Coal Production Hits All-Time High. China’s coal production has soared to another record high in 2024, reaching 4.76 billion tonnes and marking a 1.3% year-over-year increase, thanks to a surge in output since June 2024 as Beijing eased regulatory pressure on smaller mines.

Traders Divest LNG Cargoes Away from Asia. According to media reports, at least six cargoes of LNG cargoes that were en route to Asia this month were re-routed towards Europe, just as Asia’s benchmark JKM gas futures dipped below $14/mmBtu whilst European prices trade at $14.5/mmBtu.

Kuwait Discovers Giant Offshore Field. Kuwait’s national oil company KOC reported a discovery of a large commercial volume of hydrocarbons containing some 800 million barrels of medium-density oil at its offshore Al-Jlaiaa prospect, the Middle Eastern nation’s second major discovery in less than a year.

Hoping for a Better 2025, Suez Canal Readies Expansion. The expansion project of the Suez Canal, adding some 6 miles of additional navigational leeway to transiting ships near Egypt’s Little Bitter Lake, will be operational in Q1, boosting the waterway’s two-way section to a total of 51 miles.

Saudi Arabia Hopes for the Best. Amin Nasser, the chief executive of Saudi oil giant Saudi Aramco (TADAWUL:2222) said he expects oil demand this year to rise by 1.3 million b/d, but considering production caps agreed within OPEC+ they’re looking at expanding their LNG portfolio.

Cold Snap Caps Bakken Production. Oil production in North Dakota dropped by 125,000-150,000 b/d as extreme cold weather forced some operators to shut in production wells across the Bakken, equivalent to 12% of the region’s 1.1 million b/d output, with similar declines in gas production, too.

Argentina’s Shale Gale Lures Indian Buyers. Argentina’s state-owned oil company YPF (NYSE:YPF) signed a memorandum of understanding with three Indian energy firms – ONGC, GAIL, and Oil India – to potentially export up to 10 million metric tonnes of LNG from Vaca Muerta.



Off to work

jog on
duc

 

[ducati916]

Economics:

Trump is inheriting an economy that is simultaneously robust and fragile. It's evident in his economic advisers' increasingly vivid warnings of fiscal unsustainability. Why it matters: The unemployment rate is low, GDP growth is strong and inflation is falling. But those results have been achieved amid high fiscal deficits, the likes of which have only been seen in times of war, pandemic or economic crisis. Good current conditions would argue for a "first, do no harm" approach to economic policy. But incoming administration officials and allies warn that the dismal fiscal outlook leaves the nation vulnerable and warrants aggressive spending cuts, even though that may entail economic pain. "The Trump administration is inheriting a fiscal and monetary mess," Kevin Warsh, a likely candidate to be Trump's next Fed chair, wrote in the Wall Street Journal last week. What they're saying: In his confirmation hearing last week, Treasury secretary nominee Scott Bessent noted that deficits are on track to be around 7% of GDP in the years ahead, and said (accurately) that "we have never seen this before when it is not a recession or not war." "I am concerned because several times the Treasury of the United States has been called upon to save the nation," Bessent said, "whether it's the Civil War, the Great Depression, World War II, or the recent COVID epidemic." "Treasury, along with the whole government and Congress, has used its borrowing capacity to save the union, to save the world and to save the American people and what we currently have now, we would be hard-pressed to do same," he said. By the numbers: The Congressional Budget Office on Friday projected a $1.9 trillion budget deficit in 2025, 6.2% of projected GDP. It projected the national debt rising from about 100% of GDP this year to 119% in 2035 — in the absence of recessions, wars or other crises. Those projections assume that Trump's 2017 tax cuts will be allowed to expire at the end of this year. If they are extended, as is a top priority of the administration and Congressional Republicans, those numbers would be larger. State of play: Bessent was clear in his testimony that he believes tax revenues are adequate and that it would be an "economic calamity" to fail to extend the Trump tax cuts. The problem, in his telling, is entirely on the spending side of the ledger. Congressional Republicans are targeting large-scale spending reductions to be paired with extending the tax cuts, and Elon Musk's Department of Government Efficiency is targeting large-scale cost reductions. Trump sees tariffs as a tool to increase revenue. Between the lines: Serious spending cuts would likely drag inflation lower, so the Federal Reserve could attempt to offset the economic pain with lower interest rates. That would be trickier with tariffs, which tend to be inflationary.

More on Trump:

When Trump first ascended to the presidency in 2017, it seemed to global elites like a temporary aberration. Now, his leadership is set to define an era for the world economy.

Why it matters: The economic thrust that prevailed for decades — a period of nations becoming ever more interconnected, with the U.S. as the unquestioned protector of that world order — has receded fast, and doesn't look likely to return.

• Trump's "America First" priorities, transactional style, and willingness to threaten and cajole major companies and leaders of America's closest allies are all simply the way things are now.
• The ripple effects of that new geopolitical and economic landscape could extend long after his term ends.

What they're saying: "[W]hereas the first Trump administration could be seen by some as a blip, the second should be seen more as an inflection point for the political and economic order," according to the World Economic Forum's chief economists' outlook.

• Those economists anticipate huge changes in trade, migration, regulation, fiscal and foreign policy and more, "with a solid majority of 61% characterizing this change as a long-term shift rather than a short-term disruption."
• "We're living in an environment that definitely seems to imply higher rates, higher inflation, more subdued growth relative to pre-pandemic," BlackRock chief operating officer Rob Goldstein told a group of reporters today in Davos.

Between the lines: The sense that the ground is shifting beneath the feet of top economic policymakers is palpable. In effect, Trump's re-ascendence to the top of the world's biggest economy will force introspection as to what isn't working in their own countries.

• In an address to Davos attendees today, the euro area's top official said the bloc's longtime economic model is no longer viable. A complete revamp is necessary — one that accounts for a new, Trumpy economic backdrop.
• "In the last 25 years, Europe has relied on the rising tide of global trade to drive its growth," said European Commission president Ursula von der Leyen. "It has relied on cheap energy from Russia. And Europe has too often outsourced its own security. But those days are gone."

Hours later, China's Vice Premier Ding Xuexiang warned the same crowd about high-stakes changes underway.

• "Transformation not seen in a century is accelerating across the board with imminent tariff wars and trade wars," Ding said. He added: "Human society has once again come to a critical crossroads."

The bottom line: The forces Trump is setting in motion for the global economy have momentum of their own and are likely to outlast him.

• "Policies, once put in place, develop constituencies that like to see the policies remain," Raghuram Rajan, a University of Chicago economist and former governor of India's central bank, tells Axios. "These things have more of a life than one administration."

Statistics from yesterday:

• Today marked the sixth consecutive session in which more than 68% of the S&P 500 advanced, indicating a much-needed breadth expansion.
  
• Jason points out that this represents the longest streak on record, with data going back to the early 1930s.
  
• Breadth started to deteriorate in early December. While the S&P 500 pulled back less than -5% on a closing basis, rotation masked some of the corrective action beneath the surface of the index.
  

The Takeaway: Breadth has notably improved recently. Today marked the sixth consecutive session in which more than 68% of the S&P 500 advanced.



President Trump's second term has officially begun. Since winning the election a little over two and a half months ago, the S&P 500 (SPY) has risen 5.42% through today. That's better than any of the other key country ETFs shown in the snapshot below. For the most part, these country ETFs have largely fallen since the US election with the two largest declines coming out of South Africa (EZA) and Brazil (EWZ). More broadly, emerging markets like these have significantly underperformed with an average decline of 8% versus only 1% for developed market countries. While most country ETFs have fallen since early November, in addition to the US, there are only four that are up on the year: Germany (EWG), Singapore (EWS), Canada (EWC), and France (EWQ). Canada's gains may come as somewhat of a surprise as the newly inaugurated administration has put the country at the center of tariff talks alongside the neighbor to the south, Mexico (EWW). We provided commentary on these topics in today's Morning Lineup. While EWC has risen, Mexico has been much weaker with a 6.5% decline since the election. Furthermore, Mexico (EWW) is currently the country ETF that's the farthest below its 52-week highs and closest to 52-week lows (3.71% away) of the ones shown.



In the chart below, we show the relative strength lines of the country ETFs for Mexico (EWW) and Canada (EWC) versus the United States (SPY). As shown, the two ETFs have seen relative performance drop since the election as tariff tensions have become more of a reality, but that weakness is in the context of longer-term underperformance that has been persistent throughout the past year.




JC talks Consumer Stocks:

Macke's Retail Roundup Live Event Preview | Stock Market TV

www.stockmarkettv.com

PS: Historically, electricity consumption is a great proxy for economic growth; it is used everywhere & hard to store.








@TrumpWarRoom
·
Jan 17
WYDEN: “We are in an arms race on clean energy with China.

”BESSENT: “China will build 100 new coal plants this year. There is not a clean energy race. There is an energy race.”



Inflation Shocks: https://klementoninvesting.substack.com/p/what-happens-to-stocks-after-an-inflation




It's all about the debt.



Indices are higher mostly on the back of the mega-caps.

PUT/CALL ratio



If you're not already, time to be (short term) bullish.

$MOVE



Off it's lows. Definite issues ahead as Reverse Repo and TGA wind down ahead of the Debt Ceiling drama to come.



Right on cue, one of the major recession indicators entering the dangerous territory.

Now I haven't heard much chatter about recession for a while. After loads of predictions of recession in 2024 (myself included) that did not materialise, recession talk just kinda faded away. 2025 could be the year.

The real risk posed by recession is the UE rate jumping higher and blowing out the deficits even further.

jog on
duc

 

[DannyB0000]

I think a global recession is on the table if there's a serious trade war over tariffs, so far Trump is all bluster and threats, if he does more than talk and threaten countries come February 1 and other countries retaliate, then a recession is a done deal. I don't think the market is taking Trump seriously enough yet.

 

[divs4ever]

Now I haven't heard much chatter about recession for a while. After loads of predictions of recession in 2024 (myself included) that did not materialise, recession talk just kinda faded away. 2025 could be the year.

didn't they ?

NZ admits it is in one

Germany is denying ( unbelievably ) they are in one .. and if Germany ( the industrial power-house of Europe ) is .. what are the rest of the EU basket cases actually in ( i think Slovakia , Hungary and a couple of other Eastern EU states are balancing their budgets )

seems like 'recession' has become just another corrupted definition in the economic world

 

[ducati916]

Worth a watch:



jog on
duc

 

[mullokintyre]

Now I haven't heard much chatter about recession for a while. After loads of predictions of recession in 2024 (myself included) that did not materialise, recession talk just kinda faded away. 2025 could be the year.

The real risk posed by recession is the UE rate jumping higher and blowing out the deficits even further.

jog on
duc

I have also been predicting a recession in the US since last year.
Got that wrong.
Still expecting one, but the trump mania has shaken everything to bits.
The fundamentals have not changed though.
Mick

 

[ducati916]

Davos:

Economic orthodoxy is out. Rule-busting and experimentation are in. That's a key takeaway from this week's gathering of top executives and world leaders in Davos. Why it matters: Economic mini-experiments are happening in nations big and small as government officials embrace tariffs, protectionism, anti-immigration and other policies. The goal is to invigorate economic growth after tried-and-true policies have failed, despite warnings from mainstream economists that such approaches will damage the economy. However, the conventional wisdom around the economic benefits of free trade and a more interconnected world became that for a reason — and risks abound. Driving the news: "My message to business is simple: Come make your product in America, and we will give you the lowest tax rate on Earth. But if you don't make the product here, you will have to pay a tariff," Trump told the gathering in a virtual appearance — a reminder that the world's largest economy is led by a figure who rejects the mainstream economic view that tariffs are harmful. What they're saying: Top executives may not love the prospect of big tariffs but say they believe the set of policy changes on the way will be good for the economy on net. "Lower regulatory burden will result in higher profit margins, will then allow us to manage the tariff burden differently," Bank of America CEO Brian Moynihan said in an interview with Axios earlier today, so long as tariffs are used "in moderation." "We absorbed the tariffs put in during the first Trump administration and they never came off. Ten years later, we're talking about outsized economic growth relative to trend and relative to the rest of the world," Moynihan said. Or as JPMorgan CEO Jamie Dimon put it to CNBC yesterday when asked about tariffs, "If it's a little inflationary but it's good for national security, so be it. I mean, get over it." The intrigue: For the second year in a row, Argentine President Javier Milei gave a special address at Davos criticizing mainstream economic thought. "I say to all global leaders, it is time to break free of the script," Milei said. "The truth is that there is something badly mistaken about the ideas that have been promoted through forums such as this one." "It is essential to break these ideological chains if we want to usher in a new golden age," he added, borrowing a phrase from Trump's inaugural address. What to watch: European leaders face a harsh reality about their economy: Take a new approach, or fall even further behind after its yearslong slog. Officials in Germany are debating whether to upend a longtime debt rule enshrined in their constitution to jumpstart the stagnant economy. Speaking in Davos, German Chancellor Olaf Scholz pushed to expand borrowing to invest in infrastructure — an idea that helped tank the government last year. The nation's top central banker backed the idea, telling a German newspaper that the longstanding debt rule has worked well. "But now we live in a world of tectonic change and we have to address that. ... We have to start thinking outside the box."

From JC

Tech Hits 52-week Lows vs QQQs​

JC PARETS
JANUARY 22, 2025
Technology stocks have been quite the laggard for some time. In fact, the Large-cap Technology Index ($XLK) is actually down since mid-July.

Sector Rotation is the lifeblood of a bull market. How many times have you heard me say that?

And this cycle is no different. They used to tell me that it was only the Tech stocks that were driving this bull market, and nothing else what's working.

Here we are with the S&P500 hitting new all-time highs literally every single month, and Technology stocks are actually down since July.
It's been the epic rotation into Consumer Discretionary that has helped drive this market higher.

Yesterday I hosted a livestream with retail expert Jeff Macke about the Consumer Stocks that we want to own heading into 2025. Check it out here.

The chart that I think shows this rotation really well is this one here, with Technology hitting new 52-week lows relative to the QQQs, while Consumer Discretionary is hitting new 52-week highs:

Rotation rotation rotation.

That's what this is all about.

The largest component of the Consumer Discretionary Sector is $AMZN, representing 20% of the Index. It also has a 6% weighting in the Nasdaq100 $QQQ.

Below is an updated look at a chart we sent you last week showing the S&P 500 breaking above the top of its short-term downtrend channel. Since that downtrend was broken, the path of least resistance has been higher. After making a new all-time intraday high this morning, the S&P is currently set to make a new all-time closing high as well.

​

A new all-time closing high would confirm the bull market that's been in place since it began in October 2022. Below is a table showing all bull markets for the S&P in its history using the 20% rally/decline threshold. Through today, the current bull market has seen a gain of 70.4% over 833 calendar days. As shown at the bottom of the table, the median gain for all prior bull markets has been +76.7%, so we're getting close to that level! We still have a ways to go to get to the average bull market gain of 114.4%, however.

​

In yesterday's Chart of the Day, we looked at historical earnings results for Netflix (NFLX) ahead of its Q4 2024 earnings release after the close. Using our Earnings Explorer tool, we pointed out that Q4 earnings have historically been by far NFLX's best quarter. On average, NFLX shares had gained 9.14% on its 22 prior Q4 earnings reaction days (the first trading day following its quarterly earnings release). Notably, after yesterday's closing bell, NFLX posted stronger than expected Q4 results, and the stock rallied 10%+ after hours. At the moment, NFLX shares are up 9.4% on the day. It doesn't get much closer to the historical script than that!

jog on
duc