Every day the financial infotainment media feels obligated to come up with a reason for that day’s gyrations in the stock market. Since I’m in France these days, I like to call it the “raison du jour.” It’s kind of like the daily special at the local lunch counter, the soup du jour. Only it’s not the “soup of the day;” it’s the reason of the day. Or more often, the “excuse du jour.” No need to translate that!
Lately, the excuse du jou, has been the idea that investors are worried about a weakening economy. Now, the Wall Street PR flacks usually modify that as a weakening global economy, and certainly, I’ve seen plenty of evidence for that in my regular tracking of European banking system data for many months. So there’s some truth in that.
Whether it’s the impetus for the US stock market downtrend, is another matter. You know what I think. It’s not the economy, it’s the liquidity!
But what about the excuse du jour for the bond market rally and the crash in US Treasury yields. The rationale, or what’s commonly called the market “narrative,” for that is that the US economy is weakening, and that that will lead to lower inflation, lower bond yields, and looser Fed policy.
Is there any truth to that narrative, and should it matter to us as stock investors and traders? Because if it’s not true, then Wall Street is leading you down the garden path, as always doing its best to separate you from your money.
Lucky for you, you’re reading Sure Money and have access to the best data there is to assess the current state of the US economy. What makes it even better than conventional economic data is that it’s real time, it’s unmassaged, and nobody, but nobody pays any attention to it except us! So we are able to stay ahead of the crowd.
The conclusion that we can draw from this data is that the worries about a slowing economy aren’t supported. The downtrend in stocks and the rally in bonds has nothing to do with discounting a slowing economy. The trends in the markets are still and always about the direction of liquidity.
The Data Is Still Bearish So Here’s What You Should Do
In any major market turn, the economy may or may not correlate initially. Yes, as the downtrend in stocks persists, ultimately the economy will follow. But the only barometer we need is the stock market itself. It reflects the trend of liquidity, and liquidity is the driver. If we know the direction of liquidity, we know the direction that stocks must go.
But a weakening economy is not a necessary condition for a bear market. In fact, the longer the economic data stays positive, the longer the Fed will continue tight monetary policy. Tight monetary policy causes bear markets.
So my recommendation stands. Stay out of stocks and bonds and in T-bills. Do not buy these rallies. Rallies come and go frequently in bear markets. They fail and lead to lower lows until the underlying monetary policy goes from tightness to ease. The tax data says that the US economy is still growing steadily. We’re nowhere near a policy reversal yet.
Meanwhile, you can profit from the moves in this market by setting aside a small portion of your capital for high risk, high reward options trading, while keeping the bulk of your powder collecting interest in safe T-bills.
If you do this by Sunday, you could secure a minimum of $1,500