1. Moving the markets

An initial dip for all major indexes turnout to be a non-event, as they dug themselves out of that early hole and closed in the green, with especially the Nasdaq showing a strong +1.06% gain.

The rebound from yesterday’s loss happened in the face of two economic reports that kept concerns about the sluggish recovery on the front burner. However, it motivated traders to continue with the time-tested strategy of buying tech, an approach that has served them well during the pandemic.

Despite hopes to the contrary, the number of people filing for unemployment rose again above the psychologically important 1 million mark:

It dashed expectations of a lower number, namely 920k. However, with PPP having expired, this should not really be a surprise. On the positive side, Continuing Claims improved and settled back below 15 million.

The second econ report showed that a reading of business conditions fell to 17.2 in August from 24.1 in July, which should have tanked the markets—but did not.

Again, it seems that bad news is good news again and, while Congress still battles with stimulus issues, the markets simply rallied on the conviction that the Fed is committed to continue buying bonds and therefore keeping yields below a specific yet unknown level.

In the end, the major indexes recovered from yesterday’s pullback and even GLD managed a positive close after Wednesday’s spanking. Still, without further fiscal and monetary stimulus this economy is dead in the water, which means markets will need a new driver to continue ramping equities higher.

What could that be? Hmm, today I heard rumors that trade talks with China could be on deck again…

1. Moving the markets

An early upswing ran into a brick wall, as the Fed minutes created uncertainty across the board. The Fed’s shying away from Yield Curve Control (YCC), where they allow interest rates to vacillate within a predetermined range, raises the risk of a potential hike in bond yields, which is not a positive for equities.

This also caused investors to dump bonds as yields rose, though not by huge amount but enough to reflect the disappointment due to YCC more or less having been expected.

As yields rose, the US dollar showed signs of life as well and rallied, while gold dropped sharply on the possibility of less monetary easing in the future. With that type of back and forth, gold has been riding the roller coaster recently depending on the latest news, but that can change in a hurry once the Fed money printers shift into overdrive.

ZH summed up the Fed’s minutes like this:

First, the Fed’s assessment of the economy was more downbeat than many had expected; second, the fact that the Fed appeared to cool substantially on any imminent (or even medium-term) implementation of yield curve control; third, the FOMC was silent on the prospect of changes to the size or composition of the central bank’s purchases of Treasury securities.

In other words, nothing was positive for any market, but tomorrow is another day and another chance for the S&P 500 to reclaim its old highs.

In the meantime, more volatility is likely, and we will rely on our trailing stops to determine if and when to exit a particular position.

1. Moving the markets

We saw a sloppy start to the session, during which the S&P 500 bounced, dropped into the red but recovered and slowly but surely climbed out of that early hole. Despite several attempts during the recent past, today was the day the index managed to set a new all-time high. Not to be outdone, the Nasdaq joined the party, but the Dow was the laggard by closing below its unchanged line.

Sure, you can read all of the accolades about this marking the fastest recovery in history, but the main reason has not been an economic recovery but merely the reckless acceleration of money printing by the Fed, which is represented in this chart by Bloomberg:

Notice how the S&P 500 has perfectly synced up with the acceleration of liquidity ever since the March meltdown. Yes, you can safely conclude that any slowdown or reduction of monetary “activity” will cause this market to crumble. That means Fed policy is committed to maintain this trend unless Fed head Powell wants to upset the applecart.

Gold managed to not only reclaim its $2k level but also close above it. It wasn’t easy, as an early rally got slammed until buyers stepped in and recouped the early losses.  

The Nasdaq took top billing with a +0.73% gain, but it remains to be seen if that torrid momentum can be sustained. It would not be surprise so see some pullback from these lofty levels.

Lending market support late in the day was news that the Dems are reducing their stimulus demands by almost 50%, which makes me believe that a compromise deal may be forthcoming soon.

1. Moving the markets

I could not help but laugh out loud last Friday afternoon when one of the greatest gold haters, namely Warren Buffett, disclosed in his Berkshire Hathaway’s latest 13F filing that he liquidated huge amounts of US Bank stocks, and replaced them as follows:

Berkshire took a new stake (20.9 million shares) in Barrick Gold, a holding that was valued at about $564 million at the end of that period.

Say what? After mocking those who believe in the soundness of gold for decades, he appeared to have flipped, which to me means that he is clearly seeing what reckless money printing will eventually do to the purchasing power of a currency.

“(Gold) gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.”

Warren Buffett in 1998.

I find it amusing that he is finally seeing the light, and his purchase lit the fire under gold during this session, as the precious metal managed to almost reclaim its recently lost $2,000 level. Still, a gain of +2.19% make this a satisfying day.

The Nasdaq set a new intraday record, came off its high but still closed the session with a solid 1% gain, thereby outperforming the S&P (+0.27%) and the Dow (-0.31%), but lagging when compared to Gold’s superior feat. Gold’s move was helped by a drop in the US dollar, which touched its late July lows.

The S&P 500 remains stuck within 1% of its all-time high from February and clearly needs a new driver to propel it past that level, which it has now touched several times.

Quipped ZeroHedge tongue in cheek:

Tick-tock, time’s up for the dead-cat bounce…