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 own 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. If your beliefs are not similar to mine however, this information may not be useful to you. Therefore, if you’re inclined to conduct some sort of intellectual exercise in order to prove one of my beliefs wrong, remember that most people can easily find evidence to support their own beliefs and refute others. Simply know that I admit that these are my beliefs and that your beliefs might be different.
These monthly updates are 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. Significant market changes may mean the SQN Report comes out more frequently than once a month.
Part I: The Big Picture
Despite impeachment hearings, despite newsletter warnings about a bear market sell-off, the market continues in new, all-time high territory. There were ten new all-time highs in the S&P 500 within the last month. Volatility is quiet so there isn’t much to worry about in the short term.
Notice that the federal debt increased by over $1 trillion since the beginning of this year. I remember thinking that the end of the world was coming when our total official debt hit one trillion after taking so many years to get there. Now we experience a trillion-dollar increase in debt in less than a year.
I strongly encourage you to look at the US Debt Clock website periodically (www.usdebtclock.org). They’ve begun to show many new statistics recently and then changed it again since.
I want to concentrate on some of the statistics that the new format highlights:
1. The clock shows a lot of how our money is spent, including 1) defense and war $677.6B; classified programs $86.0 billion; waste and fraud $135.0 billion; food and agricultural subsidies $152.5B; and interest on the debt at $376.6B.
2. It now lists the largest items in the budget. Medicare is #1, Social Security is #2; War (we call it defense) is #3, and interest in the debt is #4. Given the top budget items and how big money thrives on the war machine, can you see how this debt problem will inevitably be a huge issue?
3. The average citizen’s share of interest on the federal debt is now $14,184. And that’s about 1/3 of the median income of $33,646.
4. The Federal Reserve’s unfunded interest is now $524 billion; and the Fed has a debt to wealth ratio of 14,741 to 1. I don’t think this is what the world’s richest families had in mind in establishing a central bank, but this ratio varies dramatically from month to month.
5. $546 Trillion in currency and credit derivatives exist now (vs $92.5 trillion in 2000). This is certainly something to watch on a monthly basis if it starts changing a lot. It’s unchanged from last month.
6. There are 17.87 million millionaires which make up 5.4% of the US population. Millionaires make up about 1% of the population in the rest of the world.
7. I assume this is for the US – The top 1% owns $56.2 trillion, while the bottom 50% owns $1.73 trillion. That means that the top 1% owns 32.5 times as much as the bottom 50%. For the whole world, the ratio is much more extreme given that 26 people own half the world’s wealth.
8. There have been 781,734 bankruptcies and 375,965 foreclosures in the last 12 months.
9. The dollar to crypto ratio in 2013 continues to vary tremendously so I don’t think this data is reliable and will stop commenting on it.
10. Healthcare costs are now $11,563 vs $5,329 in 2000. Our healthcare system treats symptoms and not cause and I understand why – treating symptoms is much more profitable.
11. The total debt to GDP ratio is now 127.51%
12. The US Dollar (M2) to gold (yearly production) ratio is now $9,249 per ounce. It was 29.1 in 1913. That’s almost a $1000 increase over the last month.
13. In 2000 the median income was $30,415 and the average price of a new car was $22,059. Now the median income is $33,646 and the average price of a new car is $38,427. So, income has gone up about 10% in 10 years while the price of a new car has doubled. That’s what the American people are facing.
If you have an iPhone, you can now download the US Debt Clock app HERE.
Remember, those with money who are in power, make the rules. Their goal is to make sure they stay in power and don’t turn it over to new wealth.
Part II: The Current Stock Market Type Is Bull Quiet
Let’s take a look at the weekly bar chart below for the S&P 500. You can see that we’ve just made another all-time high a few days ago. You can clearly see the uptrend for 2019.
I monitor time frames for the Market SQN from 5 weekly bars to 40 weekly bars. Look at the price chart pattern and you’ll probably be able to tell the direction for each of the periods –
200 days – Bull in November, Bull again
100 days – Neutral last month, Bull now
50 days – Bull last month, Strong Bull now
25 days – Strong Bull last month, Strong Bull again
So now, three of the four measured periods are Bull and the shortest period is in Strong Bull. You can see the recent rise in the Market SQN for 100 days below –
The third chart shows the volatility measurement for the last twelve months. Last month, volatility decreased and now is Quiet.
Lastly here are the weekly changes for the three major stock indices for the past month. Had you been fully invested from the beginning of 2019, you’d be up 22% in the DOW, up 29% in the S&P 500 and up almost 38% in the NASDAQ 100. Two Dow stocks, Apple and Microsoft, were up 86% and 55%, respectively accounting for much of the DOW move this year.
So is your account up at least 20% this year?
If you bought the S&P 500 January 1, 2019, and held that, you’d be up more than that. 20% in a year is a very good return. If you’re not matching that, something is wrong with your trading and you should solve the problem through our educational programs.
Note that this is also the end of a decade. Over the last 10 years, the market is up 257% which is 13.6% per year. So while the median income only went up 10% over the decade, if you had $30,000 in the market in 2000 you would have made 13.6% per year and that’s a nice increase. The average increase in the S&P 500 since the 1920s is only 10.3% per year.
Part III: Our Four-Star Inflation-Deflation Model
Three of the four components of the model were displaying inflationary strength in November –
Two big inflation months in a row (Jun+Jul) were followed by two months with scores of 0 which have been followed again by three more months of inflationary readings. The Fed has lowered interest rates three times recently – a good sign for the stock market ahead, however, we also have an inverted yield curve – a predictor of a recession beginning sometime next year.
Shadowstats.com still shows the inflation rate (as it was originally conceived in 1980) as being around 10%. With that adjustment in the GDP, the original inflation rate suggests that we have been in a recession since 2000 with just one-quarter of non-recession.
Part IV: Tracking the Dollar
USD closed December at 96.49. It was nearly at 100 in early October so we see it in a downward trend. To keep this in perspective, however, remember that the index started more than 40 years ago in 1973 at 100.
Conclusion
We continue to live through a big trade war, which I have said, is not pretty. It has several fronts and could either continue for a while or finish soon.
In addition, gold is up for the year and so is Bitcoin. BTC is up 200% for 2019 but has been in a trading range for the last few months. Bitcoin gave us a sell signal for all of our cryptoasset systems in September but could easily produce a buy signal shortly. We are less than six months away from the Bitcoin halving.
Our purpose here is not to predict but to merely reflect on what is happening right now. Be careful that you are not only paying attention to what you expect to happen. Stay in the now! Pay attention to what is happening.
Until next month’s update, this is Van Tharp.
Trade well and create the life you want for yourself.