Jamie Dimon, CEO JP Morgan, predicts interest rates could reach 8% in a few years.
In a few years, how about, say, two years? Eight percent is not a high rate, it is about the historic norm. Mortgage rates in 1981 reached 14%, West Texas Intermediate (WTIC) soars $2.00 today to $87.06.
What’s going on? As a college professor my research interest is how varying social mood drives social change. Positive mood results in stock and real estate investing, pleasantly themed music and movies, and politicians who appear successful. A rising stock market results in movies like La La Land and recently, Barbie. Now the stock market has peaked and a decline has begun. While there is always a mix of mood, we can say social mood is trending negatively.
The ultimate negative mood is war. We have two ongoing right now in the Ukraine and the Mideast. The U.S. Navy tells us Taiwan is a matter of when not if. Crime is up in big U.S. cities. Mood towards white collar crime has reached a new zenith. Ivan Boesky received three years for his insider trading in the late 1980s. Sam Bankman Fried just received 25 years for FTX. Now a Vietnamese woman has received a death sentence for stealing $44 billion, a first for a white collar criminal. A third iteration of the horror movie X debuts July 5. Godzilla and King Kong took in $80M on its debut weekend. Civil War opens in theaters today. This negative mood is surfacing in the markets as well.
The chance of a rate cut evaporated when WTIC crossed $80, now up over 10% in the last month! Our recommendations of Apache (APA), DIG, Halliburton (HAL), Transocean (RIG), and Hedge (HDGE) are doing well. And this is just beginning. May gasoline futures are $2.82, set to cross $3 in time for driving season. This will make Biden’s re-election bid a steep, uphill climb.
These events mirror the 1970s. That was a period of rising oil prices, interest rates, and near everything else. The positive mood of the bull market resulted in two term Presidencies for Clinton, Bush, and Obama. The 1970s resulted in short term Presidencies for Nixon, Ford, and Carter. In periods of negative mood, politicians appear unsuccessful. Polls indicate a majority want neither presidential candidate.
I believe the stock market, reflected in the DJIA, SPX, and NASD, peaked in late March. Prices are experiencing back-to-back negative days. The advance decline Monday had six stocks down for each stock up. The Magnificent Seven have become the Fab Four and that won’t last much longer.
All the things discussed here for months are now coming to pass, prepare accordingly.
