I always say that people do not trade the markets; they trade their beliefs about the markets. In that same way, I’d like to point out that these updates reflect my beliefs. I find the market update information useful for my trading, so I do the work each month and am happy to share that information with my readers. However, if your beliefs are not similar to mine, then this information may not be useful to you. Thus, if you are inclined to go through some sort of intellectual exercise to prove one of my beliefs is wrong, simply remember that everyone can usually find lots of evidence to support their beliefs and refute others. I admit that these are my beliefs and that your beliefs might be different.
These monthly updates are typically found in the first issue of Tharp’s Thoughts each month which allows us to get the closing data from the previous month. These updates cover 1) the market type (first mentioned in the April 30, 2008 edition of Tharp’s Thoughts), 2) the debt statistics for the US, 3) the five-week status on each of the major US stock market indices, 4) our four-star inflation-deflation model, and 5) tracking the US dollar. I also write a report on the strongest and weakest areas of the overall market as a separate SQN™ Report.
Part I: The Big Picture
For me for now, the Big Picture centers on the impacts of huge government spending. You need to ask yourself the following:
- What will be the impact of all that spending on the value of the dollar? The Trump administration produced a huge deficit – in part due to the COVID-19 pandemic. Biden will produce bigger deficits, but it is being used largely for infrastructure and that is generally very good.
- The stock market has had its best 100 days ever for a new president – so that’s probably good news for Biden.
- What will be the impact of the stimulus money people have received? People get the money based upon their income, not based upon whether they need it or not. Most Americans have kept their jobs so the stimulus money is just an extra bonus – and many have said they would invest it. They’ve now received three stimulus checks (which for most people is on top of their regular income).
- What is the impact of the super-rich getting much richer and many more Americans becoming new millionaires?
- How will the huge political divide affect this country? Such a division has not occurred since the 1920s – which was the last time there was a huge gap between the super-rich and the poor. Politicians are playing conspiracy games through misinformation and each political party generally votes as a block against the other. For example, Republicans win more votes if minorities (who are less likely to vote) are restricted from voting. Democrats win when more total people vote. Democrats would love to add Washington DC as a state and Republicans believe DC statehood will add more votes for the Democrats. So, are these politicians really interested in what’s best for the country and the population long-term, or are they thinking, “What is good for me?” The answer is easy.
- What is the impact of a few big corporations folding? When the pandemic is over, those that survive might be great investments.
- What is going to be the lasting impact of the Trump corporate tax cut? Corporations can earn as much money trading as they can in their normal business operations. And what will Biden do to undermine it?
- What will help the economy more? Keeping corporate taxes low or building infrastructure?
- What happens as a result of gold and silver losing their luster while cryptos are booming? Many cryptos are up 100% to 1,000% in just the first four months of 2021. What did I say in 2017 and 2018 about the opportunity of a lifetime? Even if you bought cryptos at the highs of 2018 and survived the 85% plus drawdowns, you would still have a great rate of return.
Now that everyone 16 years and older can be vaccinated and about 50% of the US population has been vaccinated (at least one dose), what will be the long-term impact of COVID-19?
The following table shows the information that we track regularly on the US Debt Clock website.
What are the most noticeable changes since last month? The unfunded debt is up by three trillion in a single month. Notice that the number of US taxpayers in the table continues to rise despite the media’s emphasis on COVID-19 deaths. Those deaths, by the way, now total over 550,000 which is more deaths than the US had in World War I, World War II, and the Vietnam War combined. At its peak rate, there were 3,341 deaths per day (a 7-day average) and now that is down to 851. Still, COVID-19 deaths really aren’t making much of a dent in world population growth.
I started tracking debt-related data in two more tables. This first table tracks bankruptcies, foreclosures, and employment figures — bankruptcies are ticking up, unemployment numbers are improving, but not in labor force remains pretty stable.
The second table tracks money supply figures, credit card debt, and the number of millionaires. We have 167,054 more millionaires in the US than we did at the beginning of the year, and they make up about 5.6% of the US population. Oh, and for some reason on May 1st, there were approximately 1,000 more millionaires than there were on April 30th.
Notice that we have had 10 straight months in which the number of US millionaires has gone up.
Part II: The Current Stock Market Type Is Strong Bull Quiet
I monitor the Market SQN for timeframes from 5 weekly bars to 40 weekly bars. If you look at the price chart pattern for each of those periods, you can probably tell the direction —
- 200 days – Strong Bull at the end of February, Strong Bull again,
- 100 days – Strong Bull last month, Strong Bull now,
- 50 days – Bull last month, Bull now,
- 25 days – Neutral last month, and Strong Bull now.
So now our measured periods are Strong Bull for every period but 50 days which is Bull.
Let’s take a look at the weekly bar chart below for the S&P 500. The market has been setting new highs again.
This is my definition of Bull Quiet for a whole year – slow steady upwards movement.
The next chart shows the Market SQN line for the last year –
The final chart in this series shows the volatility measurement for the last twelve months. Volatility has been mostly in the normal range since last summer and now it’s back into the quiet range. The very volatile period that started last March has now left the charts.
The following table shows the weekly changes for the four major stock indices for the last month and recent annual closing prices. Last year, the Dow was up 7.25%, the S&P was up 16% while the NASDAQ was up over 47%. Small caps were up 18% – behind the NASDAQ but ahead of the other indexes. Most of the major indices are up strongly for 2021 so far. The NASDAQ 100 is the weakest, but the big companies in that Index face possible antitrust issues in the future. The Russell 2000 is up 14.77% because money has been going into the smaller caps. Both the Dow and the S&P 500 are up over 10%.
Part III: Our Four-Star Inflation-Deflation Model
Most months since June 2020 have shown strong inflation and if you add BTC to the mix, then all months have been positive.
The original model assumed Gold is the major inflation hedge (and a hedge for catastrophic times) but Bitcoin may be replacing gold for that role. Think about it — would you rather have Bitcoin or Gold in your portfolio right now?
Look on the table at what gold has done through the entire pandemic (10 months). In March 2020 it was $1,610 and closed on February 26th of this year at $1,742 — that’s a gain of 8%. In early March 2020, BTC was $8,870 and today it is $34,296 — a gain of 286%. As a result, we added BTC as the 5th component in our model and we have added prices going back through Dec 31, 2019. We will continue to tally the old score and will add the new score with BTC to the table.
Shadowstats.com adjusts the GDP by the original inflation calculation which suggests that we have only had one-quarter of true growth since 2000. The GDP got much worse in 2020 and even though it’s starting to recover nicely, it is still at about minus 5%. Shadowstats.com shows real inflation at about 9.5% right now based upon how inflation was calculated in 1980. But that’s about normal.
Part IV: Tracking the Dollar
USD closed at about 103 a year back in March 2020. On April 30th, 2021, it was 91.3. That’s a 12 point drop in 13 months. Our World Market Model (see the SQN Report article below) has the US dollar ETF (UUP) in yellow and it is no longer one of the worst performers in the who model. Other currencies such as the Japanese Yen and the Swiss Franc are currently in much worse shape.
For most of you reading this, the US Dollar is your base currency. Donald Trump oversaw an increase in our debt of about $8 trillion during his administration, $5 trillion of that in the last year. Will Biden do any better? Unlikely – we’ve had a 2 trillion dollar increase in the debt under Biden in just his first 100 days.
Let’s look again at a few possible scenarios that might play out in 2021. I ranked these from most likely to the least likely.
1) BTC will take over from Gold as the primary protector from fiat currencies losing value. This is really not so hard to judge because it is already happening. Cryptos are experiencing huge movements and I think institutional FOMO will take hold of BTC in 2021.
2) Altcoins are now moving much faster than BTC. Despite a recent drawdown, BTC is up almost 100% this year but a number of altcoins have gone up more than 1,000% this year. For example, the following is a graph of Chainlink (LINK) showing its most recent upsurge. LINK was up 511% in 2019, 538% in 2020, and 252% so far in 2021. In 2020, I won the Systems Thinking Workshop trading contest largely because of my LINK position. I bought it at about $4 at the beginning of the contest and got out six months later at $19 which was close to the peak for that period. LINK closed 2020 at about $11.45. I own it today in my crypto portfolio (as well as most coins that US citizens can own that have had big gains) and the price is now about $40.
3) COVID-19 will be around for a few more years, but my sense is that its impact will go down fairly quickly in 2021. The effects will not be over this year because of variants and because the whole world won’t be vaccinated as fast as the US. My wife and I got the Johnson and Johnson vaccine about two months ago. After staying home for the last year, now we go out to dinner 1-2 times per week, and I’ve taken two plane trips since being vaccinated.
4) If COVID-19 is around for a few more years, then –
- BTC will have another 300% year in 2021 — which could happen anyway.
- Other cryptos such as ETH and some of the DeFi coins will also take off. This is even more likely and what I’m banking on in our recent offer for new Super Traders.
- Industries that are just hanging on for now (Airlines, Cruise Lines, Rental Cars, Hotel Chains, and other tourism/entertainment-based industries) will go bankrupt. Many more brick-and-mortar businesses will disappear.
- The rich will get richer and the divide between the rich and poor will become even wider.
- There will be much more social unrest.
5) In the last scenario, COVID-19 vaccines prove effective, and we reach herd immunity later this year. World unrest and economic malaise will improve.
With all of this uncertainly and most people worldwide still being unvaccinated and needing to stay at home, this is also the best time possible to get a financial education and work on yourself. We are here ready to help with books, eLearning courses, and online workshops.
Until the May 2021 Update next month, this is Van Tharp.