Tag Archives: stock bubble

Trump’s Trade War Dilemma And Gold

If the “risk on/risk off” stock market meme was absurd, its derivative – the “trade war on/trade war off” meme – is idiotic.  Over the last several weeks, the stock market has gyrated around media sound bytes, typically dropped by Trump,  Larry Kudlow or China,  which are suggestive of the degree to which Trump and China are willing to negotiate a trade war settlement.

Please do not make the mistake of believing that the fate the of the stock market hinges on whether or not Trump and China reach some type of trade deal.  The “trade war” is a “symptom” of an insanely overvalued stock market resting on a foundation of collapsing economic and financial fundamentals.  The trade war is the stock market’s “assassination of Archduke Franz Ferdinand.”

Trump’s Dilemma – The dollar index has been rising since Trump began his war on trade. But right now it’s at the same 97 index level as when Trump was elected. Recall that Trump’s administration pushed down the dollar from 97 to 88 to stimulate exports. After Trump was elected, gold was pushed down to $1160. It then ran to as high as $1360 – a key technical breakout level – by late April. In the meantime, since Trump’s trade war began, the U.S. trade deficit has soared to a record level.

If Trump wants to “win” the trade war, he needs to push the dollar a lot lower. This in turn will send the price of gold soaring. This means that the western Central Banks/BIS will have to live with a rising price gold, something I’m not sure they’re prepared accept – especially considering the massive paper derivative short position in gold held by the large bullion banks.  This could set up an interesting behind-the-scenes clash between Trump and the western banking elitists.

I’ve labeled this, “Trump’s Dilemma.” As anyone who has ever taken a basic college level economics course knows, the Law of Economics imposes trade-offs on the decision-making process (remember the “guns and butter” example?). The dilemma here is either a rising trade deficit for the foreseeable future or a much higher price of gold. Ultimately, the U.S. debt problem will unavoidably pull the plug on the dollar.  Ray Dalio believes it’s a “within 2 years” issue. I believe it’s a “within 12 months” issue.

Irrespective of the trade war, the dollar index level, interest rates and the price of gold,  the stock market is headed much lower.   This is because, notwithstanding the incessant propaganda which purports a “booming economy,” the economy is starting to collapse. The housing stocks foreshadow this, just like they did in 2005-2006:

The symmetry in the homebuilder stocks between mid-2005 to mid-2006 and now is stunning as is the symmetry in the nature of the underlying systemic economic and financial problems percolating – only this time it’s worse…

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The commentary above is a “derivative” of the type of analysis that precedes the presentation of investment and trade ideas in the Mining Stock and Short Seller’s Journals. To find out more about these newsletters, follow these links:  Short Seller’s Journal  information and more about the Mining Stock Journal here:   Mining Stock Journal information.

The Trade War Shuffle And The Fukushima Stock Market

The market is already fading quickly  from the turbo-boost it was given by the announcement that China and Trump reached a “truce” on Trump’s Trade War – whatever “truce” means.   Last week the stock market opened red or deeply red on several days, only to be saved by a combination of the repetitious good cop/bad bad cop routine between Trump and Kudlow with regard to the potential for a trade war settlement with China and what has been dubbed the introduction of the “Powell Put,” in reference to the speech on monetary policy given by Fed Chair, Jerome Powell, at the Economic Club of New York on Wednesday.

It’s become obvious to many that Trump predicates the “success” of his Presidency on the fate of the stock market. This despite the fact that he referred to the stock market as a “big fat ugly bubble” when he was campaigning.  The Dow was at 17,000 then. If it was a big fat ugly bubble back then, what is it now with the Dow at 25,700? If you ask me, it’s the stock market equivalent of Fukushima just before the nuclear facility’s melt-down.

Last week and today are a continuation of a violent short-squeeze, short-covering move as well as momentum chasing and a temporary infusion of optimism. I believe the market misinterpreted Powell’s speech. While he said the Fed would raise rates to “just below a neutral rate level,” he never specified the actual level of Fed Funds that the Fed would consider to be neutral (neither inflationary or too tight).

I believe the trade negotiations with China have an ice cube’s chance in hell of succeeding. The ability to artificially stimulate economic activity with a flood of debt has lost traction. The global economy, including and especially the U.S. economy (note: the DJ Home Construction index quickly went red after an opening gap up), is contracting. Trump and China will never reach an agreement on how to share the shrinking global economic pie.

While Trump might be able to temporarily bounce the stock market with misguided tweets reflecting trade war optimism, even he can’t successfully fight the Laws of Economics. His other war, the war on the Fed, will be his Waterloo. The Fed has no choice but to continue feigning a serious rate-hike policy. Otherwise the dollar will fall quickly and foreigners will balk at buying new Treasury issuance.

For now, Trump seems to think he can cut taxes and hike Government spending without limitation. But wait and see what happens to the long-end of the Treasury curve as it tries to absorb the next trillion in new Treasury issuance if the dollar falls off a cliff.  Currently, the U.S. Treasury is on a trajectory to issue somewhere between $1.7 trillion and $2 trillion in new bonds this year.

Despite the big move higher in the major stock indices, the underlying technicals of the stock market further deteriorated. For instance, every day last week many more stocks hit new 52-week lows than hit new 52-week highs on the NYSE. As an example, on Wednesday when the Dow jumped 618 points, there were 15 news 52-week lows vs just 1 new 52-week high. The Smart Money Flow index continues to head south, quickly.

For now it looks like the Dow is going to do another “turtle head” above its 50 dma (see the chart above) like the one in early November. The Dow was up as much as 442 points right after the open today, as amateur traders pumped up on the adrenaline of false hopes couldn’t buy stocks fast enough. As I write this, the Dow is up just 140 points. I suspect the smart money will once again come in the last hour and unload more shares onto poor day-traders doing their best impression of Oliver Twist groveling for porridge.

Powell Just Signaled That The Next Crisis Is Here

Housing and auto sales appear to have hit a wall over the last 8-12 weeks.  To be sure, online holiday sales jumped significantly year over year, but brick-n-mortar sales were flat. The problem there:  e-commerce is only about 10% of total retail sales.  We won’t know until January how retail sales fared this holiday season.  I know that, away from Wall Street carnival barkers, the retail industry is braced for disappointing holiday sales this year.

A subscriber asked my opinion on how and when a stock market collapse might play out. Here’s my response: “With the degree to which Central Banks now intervene in the markets, it’s very difficult if not impossible to make timing predictions. I would argue that, on a real inflation-adjusted GDP basis, the economy never recovered from 2008. I’m not alone in that assessment. A global economic decline likely started in 2008 but has been covered up by the extreme amount of money printed and credit created.

It’s really more of a question of when will the markets reflect or catch up to the underlying real fundamentals? We’re seeing the reality reflected in the extreme divergence in wealth and income between the upper 1% and the rest. In fact, the median middle class household has gone backwards economically since 2008. That fact is reflected in the decline of real average wages and the record level of household debt taken on in order for these households to pretend like they are at least been running place.”

The steep drop in housing and auto sales are signaling that the average household is up to its eyeballs in debt. Auto and credit card delinquency rates are starting to climb rapidly. Subprime auto debt delinquencies rates now exceed the delinquency rates in 2008/2009.

The Truth is in the details – Despite the large number of jobs supposedly created in October and YTD, the wage withholding data published by the Treasury does not support the number of new jobs as claimed by the Government. YTD wage-earner tax withholding has increased only 0.1% from 2017. This number is what it is. It would be difficult to manipulate. Despite the Trump tax cut, which really provided just a marginal benefit to wage-earners and thus only a slight negative effect on wage-earner tax withholding, the 0.1% increase is well below what should have been the growth rate in wage withholding given the alleged growth in wages and jobs. Also, most of the alleged jobs created in October were the product of the highly questionable “birth/death model” used to estimate the number of businesses opened and closed during the month. The point here is that true unemployment, notwithstanding the Labor Force Participation Rate, is much higher than the Government would like us to believe.

Fed Chairman Jerome Powell signaled today that the well-telegraphed December rate hike is likely the last in this cycle of rate-hikes, though he intimates the possibility of one hike in 2019. More likely, by the time the first FOMC meeting rolls around in 2019, the economy will be in a tail-spin, with debt and derivative bombs detonating. And it’s a good bet Trump will be looking to sign an Executive Order abolishing the Fed and giving the Treasury the authority to print money. The $3.3 billion pension bailout proposal circulating Congress will morph into $30 billion and then $300 billion proposal. 2008 redux. If you’re long the stock market, enjoy this short-squeeze bounce while it lasts…

Could GE’s Slow Collapse Ignite A Financial Crisis?

Will GE be the proverbial “black swan?” – It had come to my attention that General Electric was locked out of the commercial paper market three weeks ago after Moody’s downgraded GE’s short term credit rating to a ratings level (P-2) that prevents prime money market funds from investing in commercial paper. Commercial paper (CP) is an important source of short term, low-cost, liquid funding for large companies. At one point, GE was one of the largest users of CP funding. As recently as Q2 this year, 14.3% of GE’s debt consisted of CP. Now GE will have to resort to using its bank revolving credit to fund its short term liquidity needs, which is considerably more expensive than using CP.

Moody’s rationale for the downgrade was that, “the adverse impact on GE’s cash flows from the deteriorating performance of the Power business will be considerable and could last some time.” Keep in mind that the ratings agencies, especially Moody’s, are typically reluctant to downgrade highly regarded companies and almost always understate or underestimate the severity of problems faced by a company whose fundamentals are rapidly deteriorating.

As an example, Moody’s had Enron rated as investment grade until just a few days before Enron filed bankruptcy. At the beginning of November 2001, Moody’s had Enron rated at Baa1. This is three notices above a non-investment grade rating (Ba1 for Moody’s and BB+ for S&P). Currently Moody’s and S&P have GE’s long term debt rated Baa1/BBB+. In the bond market, however, GE bonds are trading almost at junk bond yields.

Once a company that relies on cheap short-term funding is locked out of the commercial paper market, it more often than not precedes the rapid financial demise of that company. Because GE is GE, it may not be rapid, but I would bet GE is on the ropes financially and could go down eventually. GE’s CEO was on CNBC two weeks ago on a Monday proclaiming that the Company’s number one priority is to bring “leverage levels down” using asset sales. One asset GE is said to be considering selling is its aviation unit, which is considered its crown jewel. This is the classic signal that a company is struggling to stay solvent – i.e. burning furniture to keep the lights on and heat the house. It’s not a bad bet that GE might file chapter 11 – or even Chapter 7 liquidation – in the next 18-24 months (maybe sooner).

I wanted to discuss this situation because I opined on Twitter recently that a sell-off in GE’s stock below $5 could trigger an avalanche of selling in the stock market. Just as significant, an event in which a company like GE is shut off from commercial paper funding is the type of “pebble” that is tossed onto an unstable financial system and starts a credit market crisis. The downgrade of GE’s short term funding rating is a reflection of rising and widespread systemic instability and the general financial deterioration of corporate America. I predict that we’ll start to hear more about GE’s collapsing operational and financial condition and we’ll start to see a lot more companies head down the same path as GE.

Note:  The above commentary is an excerpt from the November 18th Short Seller’s Journal.  Since then, GE’s stock price has dropped another 5.5%.  I had recommended shorting GE at $30 in the January 29, 2017 issue of SSJ.  GE’s tangible net worth (book value minus goodwill + intangibles) is negative $31.3 billion.

GE also has a $28.7 billion+ underfunded pension obligation. It is by far the largest underfunded pension in corporate America.  I say “$28.7 billion+” because I’m certain that if an independent auditor plowed through the pension fund assets and liabilities, it would discover that the assets are overstated and the liabilities (future beneficiary payouts) are understated.

In other words, GE’s balance sheet is the equivalent of financial Fukushima.  The previous CEO borrowed $6 billion to cover pension payments through 2020. This is like throwing napalm on a gasoline fire.

Stock, Bond, and Real Estate Bubbles Are Popping – Got Gold?

“I don’t know how this whole thing is going unwind – I just think it’s not going to be pleasant for any of us, even if you own gold and silver.  I think owning gold and silver gives you a chance to survive financially and see what it’s going to look like on the other side of what is coming…”

My good friend and colleague, Chris Marcus, invited me on to his Stockpulse podcast to discuss the financial markets, economy and precious metals.  In the course of the discussion, I offer my view of the Bank of England’s refusal to send back to Venezuela the gold the BoE is  “safekeeping” for Venezuela.

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If you are interested in ideas for taking advantage of the inevitable systemic reset that  will hit the U.S. financial and economic system, check out either of these newsletters:   Short Seller’s Journal  information and more about the Mining Stock Journal here:   Mining Stock Journal information.

Treasury Debt And Gold Will Soar As The Economy Tanks

“People have to remember, mining stocks are like tech stocks where everybody and their car or Uber driver piles into them when they’re moving higher. It’s not a well-followed, well-understood sector which is what I like about it because it means there’s plenty of opportunities to make a lot money in stocks that don’t end up featured on CNBC or everybody’s favorite newsletter.”

Elijah Johnson of Silver Doctor’s (silverdoctors.com) invited me on his podcast to discuss the fast-approaching economic crisis and my outlook for the precious metals sector:

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I’ll be presenting a detailed analysis of the COT report plus a larger cap silver stock that has had the crap beat out of it but has tremendous upside potential in my next issue of the Mining Stock Journal. You can learn more about the Mining Stock Journal here:  Mining Stock Journal information

Amazon Is Desperate To Generate Sales Growth – Why?

I’m already fatigued and disgusted with Christmas promotions. They’re everywhere now, including every other ad on television.   I’ve come to loathe the holiday season because of the extreme materialism and consumerism into which it has degenerated.

That said, Wall Street has overlooked or ignored an interesting aspect reflected in Amazon.com’s Q3 earnings circus.  Amazon is now desperate to generate sales growth.  The Company announced that it waived the $25 minimum spending requirement for free shipping during the “holiday season.”  This move devalues the $119 annual fee for a Prime account, other than the fact that non-Prime free shipping will be regular mail rather than 2-day.  As a colleague remarked,  “at least for the holiday season Prime becomes nothing more than low-level streaming service.”  Moreover, the free shipping will annihilate AMZN’s gross and operating profits.  

In 2001, FASB removed the “pooling” method of accounting for mergers which required the financials of the combined entity to be historically restated to reflect the numbers from both companies.  From Q3 2017 to Q3 2018, AMZN optically has generated a huge year-over-year quarterly growth rate because AMZN’s income statement prior to late Q3 2017 did not include WF numbers.  This fact is buried in a disclosure in the SEC filings but, of course, not mentioned by analysts or the dopes on financial television.

But AMZN will be hurt going forward because every quarter, starting with Q4 2017, contains a full quarter of Whole Foods numbers. The consequence of this for AMZN is that, optically, the “growth rate” in AMZN’s revenues will fall significantly in year-over-year quarterly comparisons. Thus, the year-over-year year quarterly comparisons thru Q3 2018 show a much higher growth rate visually even though the comparisons are not “apples to apples” (e.g. Q2 2018 included WF numbers, Q2 2017 did not). Going forward, WF’s numbers will “dilute” the growth rate of AMZN’s revenues. One of the reasons AMZN’s stock was massacred in the previous week’s market sell-off is because AMZN guided the Q4 growth rate lower.

While some of AMZN’s competitors – like Target – are offering free shipping without a spending requirement, the move by Amazon is a act of desperation designed to generate sales growth.  AMZN’s stock price is and always has been tied to revenue growth rate.  Anyone who has bothered to pull apart the financials to the extent I have knows that AMZN burns cash every quarter.  I opined a few years ago that AMZN’s stock would be demolished once the Company reaches a point at which sales growth approaches zero or declines.

AMZN’s stock plunged $252 (14.1%) in the first three trading days after AMZN reported Q3. It would have tanked even more if it wasn’t “saved” by the massive short-squeeze rally last week.  But it’s down another 4.1% today – after hitting its head on its 200 dma.  If the stock market heads south, the decline is AMZN’s stock price is just getting started…

Short Rallies, Cover Sell-Offs

I think we can all agree, it was an interesting week last week in the stock market, to say the least. For the week, the Dow was down 2.9%, the SPX was down 3.9% and the Nasdaq was down 3.8%. All three indices closed below their 200 dma. It can be argued that, on a short-term basis, the stock market is “oversold” using the MACD as an indicator. However, it appears that hedge fund algos are being re-programmed to start selling the “V” rallies that have characterized this stock market for the last ten years – something I suggested in a previous SSJ would eventually happen.

An argument can easily be made that the stock market could be cut in half from the current level and still be overvalued. I made this argument in 2007 to friends and colleagues. Back then the SPX dropped from 1,576 to 666 – more than cut in half (57%). And if would have fallen farther if the Fed and the Bush/Obama Governments had not intervened. If the SPX drops 57% this time around, it would take the SPX down to 1,274. I believe it could easily fall farther than that.

Despite the abrupt nature of the sell-off over the past month, the stock market potentially still has a long way to fall:

The chart above is a weekly time-frame that encompasses the 2007-2009 decline. The stock bubble this time around is significantly more extreme than the previous bubble. In fact, by many measures, this is the most overvalued stock market in history. I included the MACD to illustrate that, on a weekly basis, the SPX is not even remotely oversold. I sketched in a white line of “support.” While I’m sure every market analyst their favorite “technically-based” area of support, the line I drew is around the 2,550 area on the SPX.  Below that line, there’s about 400 points of “air.”

The above commentary is an excerpt from the latest Short Seller’s Journal. Some of my recent home run shorts include Tilray, Wayfair and Netflix. The issues includes strategies for shorting Tesla, Amazon and several semiconductor stocks. You learn more about this newsletter here:   Short Seller’s Journal information.

“I’m up about $40k because of your short ideas. So thanks for that!” – Subscriber who joined in mid-June, 2018

Netflix’s Giant Ponzi Scheme

A colleague/friend asked today how I thought the “FANG saga” would end.  I replied that I don’t know about GOOG and FB, but AMZN is maybe worth $50/share as it burns cash every quarter despite manufacturing GAAP “net income” so it’s hard to tell for sure – it could be worth less.  NFLX is eventually going to have to restructure its debt, which means the equity is worth zero.

NFLX soared $50 after-hours today after it reported an earnings “beat” for its Q3.  But, per its statement of cash flows, NFLX’s operations burned $690 million for the quarter, 33% more than Q2 and nearly triple the operations cash burn in Q1.  For the first nine months of 2018, NFLX’s operations have incinerated $1.45 billion.   You can see the numbers here:  NFLX Q3 financial statements.  Note:  NFLX uses an unconventional method of reporting its financials, posting them to its website in a read-only spreadsheet format that makes it a pain in the ass to read and analyze the numbers.

How does NFLX manage to show positive net income yet burn hundreds of millions of dollars each quarter?  It’s the magic of GAAP accounting.  I did a detailed analysis for my Short Seller’s Journal subscribers last year.  Each quarter NFLX has to spend $100’s of millions on content.  Most companies like NFLX capitalize this cost and amortize 90% of the cost of this content over the first two years.   Amortizing the cost of content purchased is then expensed each quarter as part of cost of revenues.  Companies can play with the rate of amortization to lower the cost of revenues and thereby increase GAAP operating and net income.

Of course, the accounting “devil” is always in the details of the cash flow statement, which Wall Street, financial media and bubble-chasing stock jockeys never bother to read.  While NFLX shows increasing operating and net income each quarter on the income statement, it also shows a big increase in cash burn from operations each quarter.  The cash burn is from money spent on content.  The net income is generated by reducing the amount of content expense amortization each quarter relative to the amount spent on content each quarter.  Despite the stock market-charming earnings “beat” each quarter, NFLX’s cash outflow exceeds cash inflow each quarter.  In simple terms, NFLX is a giant Ponzi scheme.

In the analysis I did for my subscribers in July 2017, I demonstrated this accounting Ponzi mechanism:

The ratio of cash spent on content in relation to the amount recognized as a depreciation expense can be used to determine if NFLX is “stretching out” the amount depreciation recognized on its GAAP income statements in relation to the amount that it is spending on content. In general, this ratio should remain relatively constant over time.

For 2014, 2015 and 2016, this ratio was 1.42, 1.69 and 1.80 respectively. When this ratio increases, it means that NFLX is spending cash on content at a rate that is greater than the rate at which NFLX is amortizing this cash cost into its GAAP expenses. If NFLX were using a uniform method of calculating media content depreciation, this number should remain fairly constant across time. However, as content spending increases and GAAP depreciation declines relative to the amount spent, this ratio increases dramatically – as it has over the last three years. A rising ratio reflects the fact that NFLX has lowered the rate of depreciation taken in the first year relative to previous years. It does this to “manage” expenses lower in order to “manage” income higher.

In the first nine months of 2018, this ratio was 1.70, which explains largely why NFLX’s rate of GAAP “earnings” growth is declining.

To pay for its massive cash flow burn rate, NFLX has to continually issue more debt and stock.  Earlier this year NFLX issued nearly $2 billion in junk bonds.   For the full year 2014, NFLX had $5.5 billion in revenues, its operations generated positive $16.5 million in cash. The Company had $900 million in debt and $3 billion in non-current content liabilities.  Fast forward to Q3 2018.  The Company has $14.7 billion in LTM revenues and the operations incinerated $1.93 billion LTM.  NFLX has $8.3 billion in long term debt, and $8.1 billion in content liabilities.   Debt and content liabilities tripled.

Liabilities and debt obligations are growing faster than revenues and cash flow burn, the latter of which grows at a double-digit rate every quarter – sequentially.  Cash out is growing at a faster rate than cash in.  The difference is made up by borrowing from investors. This is the definition of a Ponzi scheme.

The problem with NFLX’s business model is that it keeps its subscription rate low enough to attract new subscribers every quarter at a rate that gives Wall Street and stock-jockeys a Viagra-induced erection.  But NFLX does not charge enough for its product to cover expenses.  If NFLX were to raise the cost of what it sells to a level that would cover its expenses, its subscriber-count would plunge.

NFLX exists thanks to the massive amount of money printed by Central Banks globally, which has injected more cash into the financial system than investors know what to do with.  That’s enabled NFLX to continue floating debt.  But this game is  coming to an end and it’s only a matter of time before NFLX stock  crashes and burns.

This is why insiders have been dumping stock indiscriminately.   They were unloading shares up until October 11 – three business days ago – presumably the last day before the earnings blackout.  I don’t care if the sales are “automatic.” If insiders thought the stock deserved to go higher, or was not going lower, they would turn off of the “automatic” sell switch. In the last three months alone, insiders have dumped over 400,000 shares and bought zero.  Follow the money…

The Cracks In The Market’s Floor Grow Wider

“The only time we’ve ever seen a confluence of risk factors anywhere close to those of today was the week of March 24, 2000, which marked the peak of the technology bubble.” – John Hussman, Hussman Funds, in his October Market Commentary

The yield on the 10-yr Treasury has broken out, hitting its highest level since July 2011:

By the end of June 2011, the Fed had only reached its half-way mark in money printing. It was shortly thereafter that the Fed had implemented its “operation twist.” Operation twist consisted of selling the Fed’s short term holdings and using the proceeds plus extra printed money to buy Treasuries at the long-end of the curve – primarily 10-yr bonds. That program is what drove the 10-yr bond yield from 3.40% in July 2011 to as low as 1.33% by mid-2016. At one point the Fed owned more than 50% of all outstanding 10-yr Treasuries. The Fed’s massive money hyper-stimulated the housing and auto markets.

What should frighten market participants and policy-makers – and really, everyone – is that the 10-yr yield has soared the last Thursday and Friday despite the big sell-off in the Dow/SPX. I say “despite” because typically when stocks tank like that, the money flows into Treasuries as a “flight-to-safety” thereby driving yields lower. When stocks drop like last Thursday and Friday in conjunction with the sharp rise in the 10-yr yield (also the 30-yr yield), it reflects the development of financial market problems that are not superficially apparent.

The media narrative attributed Friday’s jump in Treasury yields to the “strong” jobs report. But this is nonsense. The number reported missed expectations. Moreover, the number of working age people “not in the labor force” rose to an all-time high,which is indicative of substantial slack in the labor market.

More likely, yields are soaring on the long end of the curve (10yrs to 30yrs) because it was quietly reported that the amount of outstanding Treasuries jumped by $1.25 trillion in the Government’s 2018 Fiscal Year (October thru September). This means that the Government’s spending deficit soared by that same amount during FY 2018. To make matters worse, the Trump tax cut will likely cause the spending deficit – and therefore the amount of Treasury issuance required to cover that deficit – to well to north of $1.5 trillion in FY 2019.

Who is going to buy all that new Treasury issuance? Based on the Treasury’s TIC report, which shows major foreign holders of Treasury securities, over the last 12 months through July (the report lags by 2 months), foreign holdings of Treasuries increased by only $2.1 billion. The point here is that, in all likelihood, the biggest factor causing Treasuries to spike up in yield is the market’s anticipation of a massive amount of new issuance. Secondarily, the rising yields likely reflect the market’s expectation of accelerating inflation attributable to the deleterious consequences of the trade war and the lascivious monetary policies of the Fed. The market is assuming control of interest rate policy.

On Tuesday last week (October 3rd), the Dow closed at a record high (26,828). Yet, on that day three times as many stocks in NYSE closed at 52-week lows as those that closed at 52-week highs. Since 1965, this happened on just one other day: December 28, 1999. The Dow peaked shortly thereafter (11,722 on January 10, 2000) and began a 21 month sell-off that took the Dow down 32%.

I don’t necessarily expect to see the stock market tank in the next few weeks though, based on watching the intra-day trading action the past couple of weeks leads me to believe that the market is vulnerable at any time to a huge sell-off. The abrupt spike in Treasury yields plus market technicals – like the statistic cited above – lead me to believe that the cracks in the stock market’s “floor” are widening.

The above commentary is an excerpt from the latest Short Seller’s Journal. In that issue I presented LULU as short at $153. It’s already dropped $8 and several subscribers and I have more than doubled our money on put ideas.  You can learn more about this newsletter here:  Short Seller’s Journal information.