The Market is Lying
The S&P 500 is comprised of 500 companies. Here are all the companies in it.
When the economy is chugging along, this index represents in a general manner the real trajectory of the business environment. When that’s the case, the advance/decline ratio is favorable and many of the component companies are rallying, but when the entire index is green and the ratio is out of whack, it means that only a few enterprises are carrying the load and that is a sign of an artificial bull market.
Right now, Apple Inc., Microsoft, Nvidia, Meta, Amazon, Tesla and Alphabet (Google), are collectively up 70% in the first five months of the year, while the other 493 companies are collectively FLAT in 2023!
This chart shows you the 100 companies in the NASDAQ index now have a market cap that’s bigger than the 2,000 companies in the Russell index.
We’ve seen this before and it usually says something about valuations…
Courtesy: Zerohedge.com, Bloomberg
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What we think is happening is a massive rally, as companies have successfully made adjustments to current conditions, but the public has not participated, since they’re sending any funds available to money-market accounts!
Wall Street is buying equities, retail is selling equities and putting it in money-market accounts and debt is expensive, in return.
If you have cash, you are king, since you can choose between a number of attractive options, but if you need capital, it’s going to cost you an arm and a leg.
Courtesy: Zerohedge.com, Bloomberg
I am telling you that even though this market’s rally is not a bubble; the bargains are gone, for the most part.
At the same time, this is all happening, while the Federal Reserve is effectively bailing out banks!
What you see above is the Bank Term Funding Program, which did not exist before, but now assists the regional banking sector avoid an epic collapse!
Once this program unwinds, the FED will need to generate a real solution, which must entail a real pausing and perhaps towards November/December, cutting slowly back down.
Mark my words on this:
Real estate is the last hurdle on the way to a full recovery of the economy and this economy has accepted inflation, as part of reality.
Interest rates must remain high and I think that in a presidential year, Washington is not about to let people go through a nightmarish tale of troubles, with the one thing that the middle-class voter cares about most… his shelter costs.
The fact that we have such strong unemployment numbers and that the wage pressures are easing lets me know that inflation is no longer in crisis, but is accepted as sticky and higher.
Washington will look to continue inflating its debt obligations with debasement of currency, so I continue to think that silver is going to rally above $30/ounce, as 2023 matures into H2.
I think the FED’s June meeting will be the so upbeat since 2019!
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