Speculation is back and the blue chips are falling behind.
WSJ Friday
We noted last week that the DJIA peaked Dec. 13. It has been ‘parked’ waiting for the end of the NASD rally. The DJIA is up 1.7% this year while the NASD has jumped a whopping 13%.
The usual suspects have done well. Amazon is up 20% from $80 to $100. Meta aka Facebook moved from $100 last October to $180 now.
ARKK an ETF of money loser has moved from $30 recently touching $45. Note, ARKK turned down yesterday with a 3% drop and momentum is peaking. Risk taking abounds with TESLA doubling from $100 to $200 just this year. America’s favorite stocks, Berkshire Hathaway, has moved from $260 to $320 and appears to be heading down. Junk bond prices offer another clue with HYG running down this past week.
How bullish are traders? The American Association of Individual Investors conducts a sentiment survey of individual investors. Optimism peaked back in October of 2021. The indicator turned negative after that but just turned back up positive last week. This coincides with what appears to be at or near the top of the counter-trend rally from October 2022.
Around the world, countries like Germany are re-considering their abandonment of nuclear and fossil fuels. A light winter rescued Germany from their exit on fossil fuels. And now gas terminals are being hastily constructed.
President Biden, in a wave to Democrats in refining states, suggested the U.S. would need fossil fuels for another ten years. This elicited a laugh from Republicans. Really Joe, are planes and ships going to be electrically powered in eleven years?
Investors who believe otherwise have been well rewarded. Valero bottomed at $97 last October and then topped at $160, now $132. ExxonMobil, given up for dead during COVID, soared from $80 last July to $114 today.
Our take is that markets are peaking now. A new Permanent Horror Museum is being constructed off the Las Vegas Strip by Universal, the studio which brought us the original Frankenstein. In bear markets people pay to be scared ala the Exorcist of 1973.
One-fourth of the stocks in the Russell 2000 cannot pay to service their debt. This means they must borrow even more money. Warning signs abound. The U.S. total debt is now over $30 trillion, more than the annual GDP. Biden states he will not negotiate anything on raising the debt ceiling. The ten-year note yield has bottomed around 3.4% and is already 3.7%. Rising interest rates will take a larger and larger part of the U.S. government total expenditures. A return to normal mortgage rates or 8% will create a ‘sudden’ crisis Team Biden will claim that no one could have expected. That day of reckoning is coming. You read it here this week.
