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Danger Ahead: Why We Are Heading Toward Double-Digit Inflation

“Government is the only agency that can take a valuable commodity like paper, slap some ink on it and make it totally worthless.” (“Maxims of Wall…

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This article was originally published by Stock Investor

“Government is the only agency that can take a valuable commodity like paper, slap some ink on it and make it totally worthless.” (“Maxims of Wall Street”, p. 152)

Yesterday, the Social Security Administration announced that it will increase monthly Social Security checks by 5.9% in 2022, its largest jump in 40 years.

Inflation is back with a vengeance. President Ronald Reagan and his Fed Chairman Paul Volcker fought the good fight against inflation, and we entered a disinflationary period that lasted 40 years. That’s quite a legacy.

But President Joe Biden and Fed Chairman Jay Powell seem determined to bring back inflation and higher interest rates. They are succeeding.

Because of huge deficit spending and easy money, commodity prices are up 50%. The official government statistic, the Consumer Price Index (CPI), has advanced nearly 6% this year. Long-term interest rates are also starting to rise.

Of course, I believe the CPI underestimates the actual rise in the cost of living because it excludes such items as income taxes and housing prices. As you can see from the chart below, housing prices are moving up rapidly, even faster than the CPI.

(Reprinted by permission.)

Financial advisor Scott Grannis stated, “There is an 18-month lag between rising house prices and rising owner’s equivalent rent (OER). We are only now at the beginning of the increase in OER. This could drive higher CPI inflation for the next year or two.”

Economists at Shadowstats.com (see below) think double-digit-percentage inflation is already here.

(Reprinted by permission.)

As a consumer and an investor, you need to increase your net worth by 10% or more just to stay ahead.

Wage Inflation and Minimum Wage

The Biden administration likes inflation and generous, never-ending unemployment compensation because it will force corporations to raise wages in response to the labor shortage.

The Democrats failed to push the $15 minimum wage bill through Congress, so they have decided to go through the back door to help out the unions by creating an artificial labor shortage. Businesses will have to pay people more to get them to come back to work, and that means wage increases for everyone and higher prices.

A Nobel Prize for Raising the Minimum Wage

On Monday, Oct. 11, the Nobel Prize committee in Sweden announced that the University of California, Berkeley, economist David Card won the Nobel Prize for his suspect 1994 study on the minimum wage. This was the infamous study that concluded that raising the minimum wage has no effect on the employment of workers, thus denying a basic concept in supply-and-demand labor economics.

Many economists have shown that his study, co-authored with the late Alan Krueger, depended on misleading data about fast food restaurants.

The Nobel Prize committee should have repeated what it had done in the past, giving the award to economists with opposite views, such as in 1974 (Friedrich Hayek and Gunner Myrdal on market intervention) and 2013 (Eugene Fama and Robert Shiller on efficient markets).

A good choice to counter David Card would have been another David — David Neumark, a professor at the University of California, Irvine. He’s done major research showing the unintended consequences of above-market minimum wage legislation.

I suspect giving David Card this prize is going to stimulate more efforts to artificially raise wages with all its ill-effects on employment, mechanization and working hours, rather than focusing on increasing labor productivity and corporate profitability (companies with higher profit margins pay their workers more).

Are the Economics Textbooks Out of Date?

Regarding the textbook approach to minimum wages, Card said in a recent interview, “The textbooks are frustratingly stupid in our field. The simple models that economists use — they want to hold onto these models, even though they know full well that there are problems with them.”

Really?

A fascinating new study of minimum wage legislation, a working paper published by the prestigious National Bureau of Economic Research (NBER), demonstrates that supply and demand still apply to the labor markets. See it here.

As I read it, economists Michael Strain and Jeffrey Clemens conclude that the closer the minimum wage gets to the equilibrium average wage for unskilled and low-skilled labor, the impact on employment is close to zero. But the further the minimum wage legislation is from the equilibrium average wage for these workers, the greater the impact on employment.

It looks like standard supply and demand curves work for the labor market after all. I sent this paper to David Card, and he never responded.

I see that Florida passed a referendum in 2020 raising the minimum wage to $15 an hour (gradually) and then indexing it to inflation. The scary part is the indexing. It means that more inflation is inevitable.

The Double Whammy of Inflation and Progressive Taxation

Inflation also benefits the government by pushing taxpayers into higher tax brackets.

Last week, under the influence of Treasury Secretary Janet Yellen, 136 nations in the Organization for Economic Cooperation and Development (OECD) signed an agreement to impose a minimum 15% tax rate on big companies. I first thought it was a typo — didn’t they mean a maximum 15% tax rate?

A flat maximum tax of 15% is ideal. Under a minimum tax, there is no limit to government abuse. As the great Scottish economist John Ramsey McCulloch warned, “The moment you abandon the cardinal principle of exacting from all individuals [or corporations] the same proportion of their income or their property, you are at sea without rudder or compass, and there is no amount of injustice or folly you may commit.”

Special Sections on Inflation, the Minimum Wage and Taxation in “Economic Logic”

My guidebook, “Economic Logic,” has several sections on taxation, inflation and the minimum wage.

Chapter 10 has a whole section on why the minimum wage is bad for workers and businesses. I offer several ways to raise wages “naturally” without government interference.

When I teach students at Chapman University on the pros and cons of the $15 minimum wage, the vast majority change their minds and vote against the minimum wage.

Chapter 19 of my book discusses the evils of inflation and easy-money policies. Chapter 21 introduces the only legitimate principle of taxation known as the “benefit” principle.

Speaking at Hillsdale College on Veterans Day, Nov. 11

I’m happy to announce that I will be speaking at Hillsdale College in Michigan on Veteran’s Day, Nov. 11, at 7 p.m., in Lane Hall. Refreshments will be served. The topic is “What is the Ideal Tax Policy that Maximizes Liberty and Prosperity?” My subscribers are welcome to attend this free lecture. See you there.

For those who can’t attend, consider buying my guidebook “Economic Logic,” which contains 28 valuable lessons on inflation, taxation, the business cycle, investing and the fundamental keys to economic growth and prosperity.

It is the only “no compromise” textbook in free-market economics, with in-depth criticisms of all the various forms of socialism, Keynesianism and Marxism.

“Economic Logic” is indeed a perfect antidote to the bad economics that students are being taught in today’s classrooms.

Click here to read all about “Economic Logic”.

My book has been endorsed by Steve Forbes, who said, “His textbook, ‘Economic Logic,’ now in its 5th edition, demonstrates his ability to look at the whole economy, that is, the real world and real people. The rigidity between micro and macroeconomics is not for him. He realizes instead that they’re all connected together. He begins this book with a profit-loss income statement to demonstrate the dynamics of the real-world economy. No other textbook does this.

“Skousen’s book brings in many other disciplines to teach lessons of economics, whether it is history, sociology, finance or marketing management. He recognizes that individual departments may be a convenient way for universities to organize their academic activities, but in the real world, it does not advance learning. They need to be integrated. In that sense, he is the spiritual heir of Adam Smith, harking back to a time before mathematicians took over economics.”

“Economic Logic” is a 708-page quality paperback with 28 lessons or chapters, and it is ideal for college, advanced high school and home-schooled students.

For a special rate of ONLY $35 (28% off the $48.95 full price) with FREE SHIPPING in the United States, go to www.skousenbooks.com.

Good investing, AEIOU,

Mark Skousen

You Nailed It!

William Shatner Rides the ‘Free Enterprise’ into Space

William Shatner, who played Captain Kirk in Star Trek, yesterday became the oldest man to go where no 90-year-old has gone before — into outer space.

William Shatner, who played “Captain Kirk,” poses with his Blue Origin crew.

Shatner and I have remained friends since he appeared as the keynote speaker at FreedomFest in 2017. The highlight of my interview with him was when I challenged him to an arm-wrestling contest (see the photo below), and even though he was 86 years old at the time and 15 years my senior, he beat me. He’s a strong guy!

Shatner, 15 years older than me, wins our arm-wrestling match.

Even today, at age 90, Shatner loves to ride horses.

When Amazon CEO Jeff Bezos invited Shatner to fly on a “Blue Origin” booster into space, I suggested that he call the spaceship “Free Enterprise,” since it is a combination of the name of his aircraft in Star Trek (“The Enterprise”), and the fact that Blue Origin is a private company, not a government endeavor.

It is amazing what Jeff Bezos has done with private space travel, as has Elon Musk with SpaceX.

Ron Baron, who leads the highly successful Baron mutual funds, is a big fan of Elon Musk.

Baron just released its latest quarterly report, with a big section on why Ron Baron believes that CEO Elon Musk is “the most accomplished and consequential engineer on our planet.” 

Baron notes that Musk is the CEO of two leading “disruptive” technology businesses: the first is the electric vehicle, extended range battery, alternative energy and software business Tesla, Inc. (NASDAQ: TSLA). The second is the privately owned rocket ship, launch and satellite broadband provider Space Exploration Technologies Corp. (SpaceX).

According to a recent survey published by Science Times, Tesla and SpaceX were ranked as “the most attractive firms for leading engineering students (to seek employment) in the U.S.” That survey reports “the electric car company topped the list and the private space company ranked second.”

Baron has invested in both and profited accordingly: Baron Partners Fund has received 14 times its initial investment in Tesla since 2014 while doubling its money in SpaceX since 2017.

Baron is still bullish on both. He stated, “We expect Tesla and SpaceX to each become substantially larger, more profitable and much more valuable during the next 10 years.”

Ron Baron’s motto is “we invest in people, not businesses.” (“Maxims of Wall Street,” p. 157; to order go to www.skousenbooks.com).

What’s so special about SpaceX? In 2021, SpaceX will provide 80% of the launches from planet Earth to space. China will provide 12%! SpaceX’s competitive advantage? Reusability! Elon calls it “RRR.” Rapidly reusable rockets.

Congratulations to William Shatner, Jeff Bezos and Elon Musk, all of whom have gone where no one else has gone before.

The post Danger Ahead: Why We Are Heading Toward Double-Digit Inflation appeared first on Stock Investor.







Author: Mark Skousen

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3 Things The Fed Must Do To Normalize Bond Markets

3 Things The Fed Must Do To Normalize Bond Markets

Authored by Brendan Brown via The Mises Institute,

By late in the second decade of the…

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3 Things The Fed Must Do To Normalize Bond Markets

Authored by Brendan Brown via The Mises Institute,

By late in the second decade of the twenty-first century, we could say that the long-term US interest rate market had been dysfunctional for a long time. We could identify the starting point as being the immediate aftermath of the Nasdaq bust and recession of 2000/01. In signalling that the rise in the Fed funds rate would be slow and gradual over a prolonged period (described by central bank watchers as a pre-commitment to a given rate path), the Greenspan Fed put an unusual dampener on long-term interest rates at the time—in hindsight the start of manipulation under the 2% inflation standard and a powerful impetus to the asset price inflation which started to form during that period. Many contemporary market critics, including senior monetary officials, attributed the “artificially low” long-term rates not to their own manipulations in the short-term rate markets but to such factors as the “Asian savings surplus”. Indeed, Federal Reserve speakers stimulated that particular speculative narrative followed widely by carry traders (including prominently the “Asian savings surplus”!) in search of term risk premium to bolster the meagre returns available in the money markets. (It is also possible that the only contained rise of long-term rates at this time reflected widespread concern that present asset inflation would end with a bust and that indeed the long series of Fed rate rises could end in speculative over-kill).

Even so the corruption of signalling in the long-maturity interest rate markets in the early 2000s paled in comparison to what was to occur under the use of the non-conventional tool box in the second decade. And the central bankers added to the corruption by citing the low long-maturity interest rates as evidence that the so-called neutral level of interest rates had indeed fallen. Yes it was a puzzle why ostensibly low long-term rates were not sparking strong growth of capital spending. Central bankers, however, were not ready to embrace the obvious explanation that their monetary manipulations had created such huge uncertainty which discouraged long-run investment spending. In particular, if almost everyone and their dog realized that a wide range of asset prices—including, crucially, equities—had become hot due to the monetary manipulations and that they were likely to crash within a few years, this would surely restrain capital spending especially for long-gestation projects to well below levels which would pertain if the hot prices were for real.

And so the prevailing central bank doctrine became long-term rates were not very different if at all from neutral. Yes, it made sense for central banks to gradually shed their huge portfolios of long-maturity debt built up during the active years of [quantitative easing] QE, but they should be ultra-cautious not to set off a snowball process of rising long-term rates and falling asset prices. Gradual should be the order of the day—or, better yet, glacial. And to match, the rise in short-term rates strictly under the control of the authorities should proceed very cautiously.

There was an alternative to the phoney normalization programme, which in any case could readily implode along the way. This would have been to turn the clock back on interest payments on reserves (permanently zero again as before 2008) accompanied by immediate action to restore the monetary base to a normal proportion of the broader money supply. Yes, long-term rates could well jump under this programme, and there could be some decline in asset prices (from the sugar highs of peak asset price inflation). But the return of reliable signalling could also have gone along with a new robustness in spending, especially capital spending, given no longer the malaise of “artificial” capital prices which could break at any point.

Policy normalization – defined as closing down the non-conventional tool box and restoring a well-functioning price signalling mechanism to the bond market – is in fact multi-dimensional.

  • At the most fundamental level, it requires abandoning the 2% inflation standard – in particular its ignoring of the natural rhythm of prices over time.

  • The second dimension is to get the monetary base back to the pivot of the monetary system. This means no payment of interest on reserves and the supply of monetary base in line with demand as consistent with a non-inflationary path forward.

  • The third dimension is getting the share of long-maturity government debt in the total liabilities of the government sector (including the central bank) back to normal proportion. That can be accomplished over a period of many years.

Action in the second dimension can take place very quickly. The central bankers take their portfolio of long-maturity bonds to the Treasury and exchange them for short-maturity Treasury bills (T-bills). The central bank conducts open market operations in Treasury bills (short maturity) to shrink the monetary base to “normal”. Of course there is much ambiguity about where is normal, and so the process of normalization on this dimension could go along with some considerable monetary turbulence for some time. That is an inevitable consequence of the huge experiment.

The normalization in the third dimension starts from the situation where the Treasury department, looking at the consolidated balance sheet of the Treasury and central bank, admits that years of QE mean in effect that an abnormally large share of government bonds outstanding are in the form of floating rate short maturities. Traditionally such a high proportion of floating rate is seen as exposing the central bank to large political pressure not to raise the short-term rates under their control (because of direct funding cost implications in terms of budget deficit)—even when it suspects that monetary inflation has got under way.

If the central bank buckles under such pressure, then it becomes indeed an important source of tax collections for the government – in the form of inflation tax. One form is the suppression of interest rate income (to below what would be the case under sound money) on Treasury paper – the other is the capital tax (in real terms) on government bonds and monetary base enacted by inflation erosion.

*  *  *

This article is a selection from The Case Against 2 Per Cent Inflation: The Negative Rates to a 21st Century Gold Standard (Palgrave Macmillan, 2018).

Tyler Durden
Mon, 10/25/2021 – 15:40












Author: Tyler Durden

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3 Top Stock Trades for the Week

Editor’s Note: This article is updated weekly to bring you fresh trade ideas.

The risk-on rally is continuing in earnest on Monday. Headlines will…

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Editor’s Note: This article is updated weekly to bring you fresh trade ideas.

The risk-on rally is continuing in earnest on Monday. Headlines will point to the S&P 500 pushing to a new record high, but what traders should find most impressive is the breadth of participation. Buyers aren’t just coming after stocks. They’re scooping up commodities and crypto too. Given the tailwind, this week’s update to the top stock trades gallery features three bullish ideas.

In scouting for the best opportunities, I found a diversified list to give you plenty of options.

First up is a red-hot retailer that has made bank of the post-pandemic economic recovery. Next comes an exchange-traded fund (ETF) offering a path to play a potential year-end breakout in small caps. Finally, we’ll break down a steel company that’s ramping after passing a recent earnings test.

That said, here are the tickers:

  • Dick’s Sporting Goods (NYSE:DKS)
  • iShares Russell 2000 ETF (NYSEARCA:IWM)
  • Steel Dynamics (NASDAQ:STLD)

As always, we’ll do a quick rundown of each chart, followed by an options trade.

Top Stock Trades: Dick’s Sporting Goods (DKS)

Source: The thinkorswim® platform from TD Ameritrade

Earnings growth for Dick’s Sportings Goods has been explosive over the past 18 months. Its best quarter EPS in the year before the pandemic was $1.26. It just reported $5.08. Its share price has reflected the incredible recovery by rising more than 10-fold from last March’s low. Spectators loath to chase will be happy to learn that DKS stock just pulled back 23% from its highs, providing a compelling chance to get in at lower prices.

The daily chart just completed an inverted head and shoulders pattern, confirming buyers are returning. Additionally, today’s 1.5% rally is pushing prices back above the 50-day moving average and suggests now is a smart time to enter.

Implied volatility is high enough to make spreads a better choice than buying calls outright.

Top Stock Trades: Buy the December $130/$150 bull call spread for $5.50.

You’re risking $5.50 for the chance to make $14.50 if DKS stock rises to $150 by expiration.

iShares Russell 2000 ETF (IWM)

iShares Russell 2000 ETF (IWM) with looming breakoutSource: The thinkorswim® platform from TD Ameritrade

If you’re hesitant to chase the S&P 500 at all-time highs, then consider shopping small-caps. The Russell 2000 Index has done nothing for the last 10 months. As a result, we have a long-term trading range that could lead to some serious upside once resistance gets breached. The silver lining of price pausing is it has allowed earnings to play catch-up and stretched valuations to become less so.

Although IWM has been unsuccessful in breaking out of its range, I think it’s just a matter of time. And, with the bullish seasonality of November and December looming, a year-end run could finally deliver what bulls have been waiting for.

Over the past two weeks, small caps have pushed toward the upper end of the range, placing us within striking distance of another resistance test.

I like using bull call spreads to profit from the expected move higher.

Top Stock Trades: Buy the December $230/$240 bull call spread for $4.

You’re risking $4 to make $6 if IWM rises above $240 by expiration.

Top Stock Trades: Steel Dynamics (STLD)

Steel Dynamics (STLD) stock chart with bullish breakoutSource: The thinkorswim® platform from TD Ameritrade

The basic materials sector benefits when inflation heats up. Nowhere has this been more apparent than in the steel industry. Consider the past four EPS quarterly numbers for Steel Dynamics: 97 cents, $2.10, $3.40, $4.96. Talk about an eye-popping profit surge! It’s no wonder STLD has doubled in price this year.

Though the stock didn’t move much after the latest report, prices are now breaking through resistance. We’re also back above all major moving averages, which clears out a lot of potential supply. Volume patterns have been heavily favoring bulls in the wake of last week’s report as well.

To capitalize on the follow-through from Monday’s breakout, consider the following idea.

Top Stock Trades: Buy the December $70/$75 bull call spread for$1.35.

You’re risking $1.35 to make $3.65 if STLD rises to $75 by expiration.

On the date of publication, Tyler Craig was long IWM. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

For a free trial to the best trading community on the planet and Tyler’s current home, click here!

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Author: Tyler Craig

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Monday Amusement: The New Normal Investing Rules For A ‘QE’-Driven Market

Monday Amusement: The New Normal Investing Rules For A ‘QE’-Driven Market

Authored by Lance Roberts via RealInvestmentAdvice.com,

A recent…

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Monday Amusement: The New Normal Investing Rules For A ‘QE’-Driven Market

Authored by Lance Roberts via RealInvestmentAdvice.com,

A recent post on CNBCdiscussed Bob Farrell’s 10-Investing Rules. These rules have withstood the test of time as it relates to long-term investing.

Here’s a list of Farrell’s 10-rules:

  1. Markets tend to return to the mean over time

  2. Excesses in one direction will lead to an opposite excess in the other direction

  3. There are no new eras — excesses are never permanent

  4. Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways

  5. The public buys the most at the top and the least at the bottom

  6. Fear and greed are stronger than long-term resolve

  7. Markets are strongest when they are broad and weakest when they narrow to a handful of blue-chip names

  8. Bear markets have three stages — sharp down, reflexive rebound and a drawn-out fundamental downtrend

  9. When all the experts and forecasts agree — something else is going to happen

  10. Bull markets are more fun than bear markets

However, given more than a decade of QE-driven bull market advance, I wondered what they might be like if Bob Farrell was alive today. Would he have changed his mind?

With this in mind, I present Bob Farrell’s 10-Investing Rules For A “QE” Driven Market. (Tongue firmly implanted into the cheek, of course.)

1) Markets Remain Deviated From The Long-Term Means Over Time

Bob believed that stock prices get anchored to their moving averages. As such, with regularity, prices must and will revert to and beyond those means over time.

However, as any young retail investor will tell you, such “boomer” ideas must be “put out to pasture,” as they say in Texas. All you need is a fresh round of “stimmies,” some “rocket emojis,” and you have all the ingredients necessary for a bull market.

Sure, prices certainly get overextended, but any dip is a buying opportunity because the “Fed put” ensures any downside is limited.

2) Excesses In One Direction (On The Upside) Lead To More Excesses

“Ole’ Boomer Bob” antiquated notion that markets, which can and do overshoot on the upside, will also overshoot on the downside, is also clearly wrong. The further markets swing to the upside, the higher they should go.

There is no reason not to buy stocks as long as there are low interest rates, liquidity, and a mobile trading app. Sure, prices are a “smidge” above fair value, but valuations are such an antiquated metric. Also, plenty of articles suggest the “P/E” ratios are terrible market timing devices, so why even pay attention to them?

Sure, the market-capitalization ratio is almost 3x what the economy can produce, but we have never been in a market like this before. With all the Fed and Government money paying for everything, there is no reason to be productive when everyone can stay home, trade stocks and play “Call of Duty – Warzone.”

3) There Are No New Eras – Except This Time As Excesses Are Permanent

There will always be some “new thing” that elicits speculative interest. Over the last 500 years, there were speculative bubbles involving everything from Tulip Bulbs to Railways, Real Estate to Technology, Emerging Markets (5 times) to Automobiles, Commodities, and Bitcoin.

Jeremy Grantham posted the following chart of 40-years of price bubbles in the markets. During the inflation phase, each got rationalized that “this time is different.” 

But Jeremy is an old “boomer” that doesn’t understand current markets.

Multiple media sources pen articles stating valuations don’t matter. As long as interest rates are low, the Fed provides liquidity; stocks can only go up. That is a much better narrative, and if I put out a 1-minute video on “Tik-Tok, I can get a bunch of followers.

4) Rapidly Rising Markets Go Further Than You Think, But Correct By Going Even Higher.

The reality is that excesses, such as we are seeing in the market now, can indeed go much further than logic would dictate. However, these excesses, as stated above, are never worked off simply by trading sideways. Instead, excessively high prices are “corrected” by prices just going higher in this new market.

That makes complete sense to me.

5) The Public Buys The Most And The Top, And More At The Next Top

After more than a decade of Fed interventions, investors believe that buying at the current “top” will be a bargain compared to an even higher top coming. Sure, logic would dictate the best time to invest is after a sell-off, but if you have “Diamond Hands,” you need to keep buying because prices will only go up.

6) Fear (Of Missing Out) And Greed Is All That Matters

As stated in Rule #5, emotions cloud your decisions and affect your long-term plan.

“Gains make us exuberant; they enhance well-being and promote optimism,” says Santa Clara University finance professor Meir Statman.  His studies of investor behavior show that “Losses bring sadness, disgust, fear, regret. Fear increases the sense of risk and some react by shunning stocks.”

What is clear is that Meir Statman does not have “Diamond Hands.” While he is correct, there are only two primary emotions any investor should have.

  1. FEAR – The “Fear Of Missing Out;” and,

  2. GREED – The “Cojones” to take out debt, lever up. and ramp your “risk bets” in this one way market.

In the words of Warren Buffett:

“Buy when people are fearful and sell when they are greedy.”

Clearly, “Boomer Buffett” doesn’t get it either. But, of course, he is the same idiot sitting on $150 billion in cash whining because he can’t find anything to buy. So if he was indeed an “Oracle,” why didn’t he load up on AMC and GameStop?

7) Markets Are Strongest When The Fed Is Dumping Liquidity Into The System

“Breadth is important. A rally on narrow breadth indicates limited participation and the chances of failure are above average. The market cannot continue to rally with just a few large-caps (generals) leading the way. Small and mid-caps (troops) must also be on board to give the rally credibility. A rally that “lifts all boats” indicates far-reaching strength and increases the chances of further gains.” – Every “Old” Technical Analyst

Sure thing, “Boomer.”

To crush the market, all you have to do is buy the 10-fundamentally worst companies that have the highest short-ratios, leverage it up with margin debt and options, and sit back. Then, the “ATM” will start spitting out money.

All you need to watch is for a change in the Fed.

The high correlation between the financial markets and the Federal Reserve interventions is all you need to know to navigate the market.

Those direct or psychological interventions are all you need to justify taking on all the speculative “risk” you muster.

8) Bear Markets Have Three Stages – Up, Up, and Up.

“We don’t have no stinkin’ bear markets.”

Any decline in the market is just a good reason to take on even more risk. Given the Fed will stop any market crash by injecting trillions in liquidity, buy.

After all, before the “economic shutdown,” I had to work three jobs (Uber, Lyft, and Amazon delivery) to make ends meet. Now, I sit at home, trade stocks, and make “TikTok” videos about all the money I am making. Plus, once I get to 100,000 followers, I increase my income by doing affiliate marketing and getting my followers to trade on Robinhood.

What could go wrong with that?

9) When All Experts Agree – Whatever They Agreed On Is Likely To Happen

Another old “boomer,” Sam Stovall, the investment strategist for Standard & Poor’s, once quipped:

“If everybody’s optimistic, who is left to buy? If everybody’s pessimistic, who’s left to sell?”

Well DUUHHHH!!! Who wants to sell? That is just stupid.

10) Bull Markets Are More Fun Because Bear Markets Don’t Happen Any Longer.

What should be clear by now to anyone is that after 12-years of monetary interventions, “Bear Markets” can no longer happen.

So, suck it up, quit your complaining, and “Party On Garth.”

This Time Isn’t Different

If you detected a hint of sarcasm in today’s post, don’t be surprised.

Like all rules on Wall Street, Bob Farrell’s rules are not hard and fast. There are always exceptions to every rule, and while history never repeats exactly, it often “rhymes” closely.

Nevertheless, these rules get ignored during periods of excess in markets as investors get swept up into the “greed” of the moment.

Yes, this time certainly seems different. However, a look back at history suggests it isn’t.

When the eventual reversion occurs, individuals, and even professional investors, try to justify their capital destruction.

 “I am a long term, fundamental value, investor. So these rules don’t really apply to me.”

No, you’re not. Yes, they do.

Individuals are long-term investors only as long as the markets are rising. Unfortunately, despite endless warnings, repeated suggestions, and outright recommendations, getting investors to manage portfolio risks gets lost in prolonged bull markets. Unfortunately, when the fear, desperation, and panic stages get reached, it is always too late to do anything about it.

Those with “Diamond Hands” will eventually sell at the worst possible time.

Just remember, “Old ‘Boomer Bob’” did warn you.

Tyler Durden
Mon, 10/25/2021 – 14:25








Author: Tyler Durden

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