This year the prices of tin, copper, lead, aluminum, and zinc, have declined between 33.1% and 12%. The message is less demand for industrial metals which suggests a weakening economy.
WSJ Friday Recession Fear Sinks Copper to 2 Year Low
The stock market rises amid positive social mood. Individuals set aside any fear of risk preferring the thrill of the FOMO, the Fear of Missing Out. This column warned that all the major indexes topped between November 2021 and January 2022.
A scan of the headlines shows the move to negative mood world wide.
- Crypto Market Tumult Shows Lack of Investor Protection
- New York City Employees Fear Returning to Work
- 26,300 NYC small businesses close permanently
- British PM Boris Johnson resigns (negative mood politically results in a throw the bums out mentality, Team Biden take note)
Investment firms fall back on buzzwords to explain how they never saw the sell-off coming. It’s a perfect storm. It’s a black swan event (rare and unpredictable), we’re not bankrupt, the new climate, no karma in a bubble. The reality is better summed up by Nassim Taleb, author of the Black Swan. You have to be a moron to think these are rare, unpredictable events.
As noted in our column in mid June, the bullish percent of energy stocks collapsed from 95% to 5% in the first half of that month. Now crude oil has traded below $100 with a bounce back the last two days to $105. But backwardation exists in the oil futures market. This means distant future oil prices are trading for less than current prices. Usually the more distant months are higher due to storage costs. So in the near term expect crude oil prices to descend to the level of future prices. November 2023 crude oil is trading at $80. So a move to $85 in the spot market is reasonable. That will lower gasoline prices. But like sagging metal prices it also suggests a weaker world economy.
Stock prices have at best staged a fractal Wave Two weak rally from the June 21 low. The SPX managed 3,740 to 3,901. This moves the index right up to the down-trend line. January high to June low, SPX and DJIA are down about 22% this year while the tech heavy NASD has already lost 34%.
Worse, most self directed 401K plans have rules preventing one from frequently switching from long to cash or short. That is a formula for long term loss in a period like this.
Over the next two years only one strategy will work, and it is not buy and hold. We suggest using this short bounce to exit positions. Otherwise baby boomers’ retirement will be ‘aback to work.’
