Even though we are seeing wild trading in global markets post-election, things about to get even wilder.
Things Are About To Get Wild
November 6 (King World News) – Gregory Mannarino, writing for the Trends Journal: Take everything that you think you know about economics and finance, AND IT ALL COMES DOWN TO JUST TWO FUNDAMENTAL TRUTHS.
- To have a strong economy you need a strong currency, and
- To have a strong currency, you need a corresponding rate of interest high enough to support the purchasing power of the currency.
Today the entire world economy is freefalling faster than any other time in history. Meanwhile, the world’s stock markets are at near record highs.
(The US stock market this year alone has hit a new record high 47 times.)
But how is this even possible?
How can there be such a great disconnect between the economy and the stock market?
A PARADOX.
Today’s EXTREME DISCONNECT between the economy and the stock market is possible because of THE FACT that the two fundamental truths which support a strong economy, as I outlined above, have been turned upside down.
It is these same two economic truths, when they are turned upside down, now become AN ECONOMIC WRECKING BALL.
However, it is also these same two economic truths that when turned upside down, PUSH WORLD STOCK MARKETS TO RECORD HIGHS.
Low/artificially suppressed interest rates steal currency purchasing power and therefore are massively inflationary. Low/artificially suppressed rates IS EMERGENCY MONETARY POLICY; it is also known as Quantitative Easing (QE).
QE is only to be used as a temporary measure, because when implemented longer term it is massively economically destructive.
QE is STRONGLY POSITIVE FOR THE STOCK MARKET.
The general population has no idea of even the MOST BASIC Economic/Financial System fundamental principles. Therefore, what is happening now WILL CONTINUE.
The mechanism of artificially suppressed rates, and therefore currency devaluation will get more extreme moving forward. In fact, there is a VERY REAL possibility that here in the US people may be forced to endure a NEGATIVE RATE environment.
With artificially suppressed rates/currency devaluation goes people’s hopes, dreams, futures, and a rapid decline in the standard of living.
Moreover, the fact that the system has been turned upside down ensures it—THE VANISHING POINT.
Post-Election
King World News note: Post-election, the US Dollar Index has risen strongly, 1.7 points, a huge move for a currency in a single day. The US Dollar Index is back to the 105 level. Part of the surge in the dollar is interest rates are surging, while gold is seeing volatility, continuing to consolidate its massive gains with futures currently trading at $2,670. Silver has also traded weaker to $31.20.
The bottom line is some momentum traders are being shaken out of the precious metals futures market and mining share market. King World News readers around the world need to remember this is a bull market, and remain focused on the big picture during this type of volatility. Do not get emotional. Instead, be patient and accumulate if there is any serious weakness. This will end in a mania.
About The Election
Peter Boockvar: We of course wait to see who will win the House as the outcome will determine the fate of the major legislative deadline of the expiring Trump tax cuts at the end of 2025. I’ll say again, the high US budget deficit is because of the spending side which is about 23% of GDP vs the tax revenue component which typically hovers around 17% regardless of tax rates. Either way, at best, tax policy likely stays the same as the low hanging tax cut fruit in 2017 is no longer here.
On the potential for a ramp up in the tariff war, I worry very much about a scattershot approach.
M&A bankers are happy today as are all those companies who have been looking to do deals and those industries like financials who will see an easing of the regulatory pressure. For those CEOs that were blaming the election for hesitancy for capital investment and/or traffic trends, we’ll now see to what extent that changes.
For stocks, the key from here is at what point does this rise in interest rates matter as the 10 yr yield is approaching 4.50% and the S&P 500 now trades at 24x 2024 earnings estimates. By the way, the 2 yr inflation breakeven is jumping by 14 bps this morning to 2.52%. The 5 yr breakeven is higher by 16 bps to 2.49%.
As for the Federal Reserve, we heard a lot before the first rate cut in September from Jay Powell & Co about needing ‘confidence’ that inflation was falling to target in a sustainable fashion in order to start cutting rates. While in the coming months the inflation stats could continue to disinflate, in light of all of the above can they really have ‘confidence’ that inflation will stay down in light of the potential economic and market reaction to the election, among other things? I wouldn’t think it’s even possible to have that level of confidence that should trigger a rate cut tomorrow, especially after going 50 bps in September. They always have December, and 6 weeks after that, and another 6 weeks after that, etc…to decide.
As we know rents are a big part of CPI, here is what AvalonBay Communities said yesterday and who does not have much sunbelt exposure where most of the rent pressure is taking place:
“during our mid year earnings call, I mentioned the possibility of a reaccleration in asking rent and rent change given softer comps from Q4 2023. We’re now starting to see that trend come to fruition…asking rent growth during the year has followed traditional seasonal curves and outperformed our experience throughout 2023. Recently, the level of outperformance has widened, and as of November 1, the average asking rent for our same store portfolio was approximately 3% greater than the same date last year with the East Coast roughly 4% higher and the West Coast above 2%. The higher average asking rent will flow through to improved rent change, particulary for new move-ins as we look forward. Currently we’re forecasting rent change in November to be stronger than October and increase further as we move through December.”
I will reiterate my belief again that we are NOT magically going back to a 1-2% inflation rate and STAYING there. Inflation volatility is the new normal.
With another jump in mortgage rates to 6.81% according to Freddie Mac for the average 30 yr term, purchase applications fell 5.1% w/o/w and refi’s were down by 18.5%. The Federal Reserve needs a gut check.
Breakout Triggers Remarkable Price Predictions For Silver & Gold
To listen to Michael Oliver’s remarkable predictions for gold, silver, miners, and the stock market CLICK HERE OR ON THE IMAGE BELOW.
© 2024 by King World News®. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. However, linking directly to the articles is permitted and encouraged.
