Best Image of the Week – Fashionable Maria Bartiromo in stunning outfits interviewing big wigs on Fox Business at Davos, outside with gorgeous Swiss background.
Worst Image of the Week – Microsoft CEO Nadella arriving on a private jet at Davos announcing 10,000 lay-offs due to slow economy, do you suppose he took a ceremonial pay cut?
The last low on the DJIA was December 22 at 32,573.40. It then rallied into January 13 at 34,342.30. A larger drop has begun. The DJIA has dropped about 1,300 points this week, now trading at 33,072. Not exact but this is similar to the beginning of 2022. Then the DJIA topped early in January, dropping to January 24. A corrective rally of 1,500 points lasted into early February. The decline then resumed.
All of this is very much like 1973-74 which is our historic template. Stocks topped in January 1973 and then fell 50% into December 1974.
One can easily follow the decline with some ‘proxy stocks.’ Amazon was cut in half in 2022, and only rallied from 80 to 100 (our target) and is now falling again. Berkshire Hathaway dropped from 360 to 260, rallied to 320 and is now falling again. If your financial advisor has not realized this is a bear market, I suggest you shop for someone more attuned to the new normal.
About the debt ceiling, there is no debt ceiling. Congress has been raising it all my life. We have warned that if interest rates continue to increase the next few years, debt service on the $30 trillion will swamp the entire budget. The result would be a Weimar Republic melt down of the U.S. currency, just what China and Russia would like to see.
Bond prices have rallied as stocks sold off this week. Our recommendation to buy closed end municipal bond funds has worked well. It may be that these funds will hold recent gains as investors flee stocks and look for tax-free dividends.
The energy markets have surprised. Warmer than expected weather has knocked natural gas prices back to the $3.50 area. Shares of energy companies have soared. West Texas Intermediate has clawed its way back to the $80 area. A weekly close over $83 will turn the trend back up. That is good for the Permian Basin. However, gasoline prices have now bottomed at $2.00 (continuous futures contract). Prices have already risen to $2.60. Team Biden never got their chance to refill the Reserve for $70 or less. After claiming credit for lowering prices, they didn’t, what will they say as futures return to $3.00?
