The commodity markets appreciated 4.14% in July (using the CRB Commodity Index (PR) as a guide). The equity markets continued on a tear, with the tech-heavy NASDAQ 100 Futures up +7.61% and the S&P 500 futures up +5.85% (both PR). Gold made an all-time high in U.S. Dollar terms (having already made all-time highs versus every currency I have seen) and was +9.01% (PR) using the August futures. U.S. Treasury Bond futures were up +2.08% (PR) and the Dollar Index dropped -4.15% for the month.
What is causing almost all markets to move higher, while the U.S. Dollar drops? Of course, the main culprit is the U.S. Federal Reserve, as well as the U.S. Treasury printing paper money and giving it away in relief and stimulus bills. The Federal Reserve’s balance sheet was reported as flat for the month, but projections of it increasing from $7 trillion to $10 trillion by the end of the year are already being discounted by the markets. This - coupled with at least another $1 trillion in fiscal giveaways already proposed - has caused the markets to believe the bounce back from the latest -32.9% decline in GDP (annualized) will be accompanied by a large increase in inflation. June CPI was up +0.6% or 7.2% annualized if that continues for the next eleven months.
The latest Atlanta Federal Reserve 3rd quarter GDP estimate of +11% (annualized) is about half the assumed 20% that was to accompany the “V recovery” touted by the current administration. With this being an election year, it can only be assumed we’ll see more stimulus in an effort to attract additional votes. I suppose whoever gives the most is considered the “winner.”
The irony of these markets is the further discounting of the good news to come, and the huge disconnect the markets have with current economic data. Not to mention the violence and anarchy taking place in many parts of the country, especially in Portland. Add to this mix the recent spike in COVID-19 cases, which is certainly not conducive to expanding business production. What to do?
In lieu of a market opinion, I recommend reading George Orwell’s “1984” instead of Ben Graham’s “The Intelligent Investor.” Alternatively, perhaps a few games of “Monopoly – the Cheater’s Edition” will guide you through the next year. It seems fundamentals are no longer relevant to market action.
The statements in this communication are the opinions of its author, Victor Sperandeo, and are not to be relied upon by anyone as the basis for an investment decision. Any investments made by a party in reliance thereon are made at such party’s sole risk. No guarantee of any kind is implied or possible where opinions as to past or future market conditions/events is provided. Past performance is not necessarily indicative of future results.