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 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
We currently have inflation. We have a Federal Reserve that plans to stop the qualitative easing process and a stock market that could crash as a result. The president’s approval rating is low because he hasn’t been able to get much of his agenda through Congress. But the Democrats just have a majority and they are very fractured – much more so than the Republicans.
Much of the inflation problem has to do with a backlog of materials sitting in our ports that cannot get out. For example, there is a huge inflation in the price of lumber, but much of that has to do with lumber sitting in the ports. My framer said that sometimes he has to wait a year to get certain frames and they’ve gone up a huge amount. So, the Fed wants to fight that. Can it if much of it is due to a transportation and storage problem? I doubt it.
Also, the pandemic is by no means over. Biden is urging people to get vaccinated rather than re-impose restrictions on people’s activities. All of this means that perhaps the Fed will still need to stimulate the economy.
The following table shows the information that we track regularly on the US Debt Clock website.
The numbers are so large and the trends are so persistent that it takes some effort to focus on what they say – beyond “Our debt is huge”.
The table below tracks bankruptcies, foreclosures, and employment figures. The prohibition on evictions will end shortly so foreclosures and bankruptcies could go up in the coming months.
The next table tracks money supply figures, credit card debt, and the number of millionaires. The number that might jump out for you in all of these tables, based on the website www.usdebtclock.org, is one figure that dwarfs all of the others – derivatives. Interesting but should it be concerning?
Part II: The Current Stock Market Type Is Sideways Normal
Van monitors the Market SQN for timeframes from 5 weekly bars to 40 weekly bars. Looking at the S&P chart just below, it’s not too hard to tell which market type dominates all four time periods.
- 200 days – Bull in November, now Strong Bull
- 100 days –Bull last month, now Strong Bull
- 50 days – Bull last month, now Strong Bull
- 25 days –Neutral last month, and now Strong Bull
You can see that all time frames either stayed the same or got more bearish, even though the yearly chart looks quite strong.
For the same time period as the chart above, the chart below shows the Market SQN score. We see Strong Bull for almost the whole of the last year, except for a few forays into bull territory, including now.
The final chart shows volatility for the last twelve months using the ATR%. For the last year, volatility has spent the period in a long-term trend of decreasing volatility mostly in the Normal and Quiet ranges.
We were in Normal for most of December with a slight move into volatile.
The next table shows the four major exchanges of the year. Two important points here. First, inflation was well over 6%. Second, both the S&P500 and the QQQ were up over 26%, while the Dow small caps were up 18.73% and 13.7%, and bitcoin was up about 38.8% but is currently in a bearish trend.
For all of the recent talk about inflation and whether it proves to be transitory or not, let’s see if the numbers tell us we are seeing inflation now.
Part III: Tracking Inflation
The following table shows our proprietary inflation model that now includes BTC. We may take gold out because it’s no longer what most people are using as an inflation model.
Our model is showing inflation but I’m really beginning to think that gold doesn’t below in the index anymore and I will take it out in 2022.
Part IV: Tracking the Dollar
USD has been slowly going up since the end of May and as of the open on December 1st it was $96.00 which was higher than last month despite an end of the month weakness. The dollar does not appear to be losing its relative value compared with other currencies. All that might mean, however, is that traders are factoring in inflation for the other major currencies as well. It was 95.97 at the close on December 31st.
For most readers, the US Dollar is your base currency. As there is some lag between monetary and fiscal policies, early signs of inflation may be showing up with much more to come. Congress, Biden, and the Fed have increased spending dramatically which has short-term and longer-term effects. What will you do if inflation continues or increases?
Conclusion
According to the NY Times, the following were the biggest headlines of 2021. I thought I’d conclude by discussing their financial impact.
The US Capitol Riots
On January 6th, as Congress convened to certify Joe Biden’s electoral victory, hundreds of protesters who were in Washington D.C. for the “Save America” rally violently breached the U.S. Capitol building, making it as far as the Senate chamber, killing one Capitol police officer, and injuring more than 140 others. The insurrectionists, comprised largely of pro-Trump supporters, caused roughly $1.5 million in damages. Instead of encouraging a peaceful transfer of power—a fundamental tenet of American democracy—President Donald Trump stoked the flames of insurrection with rhetoric about the election being fraudulent, stolen, and called on supporters to take action.
Since then: On January 13th, with one week remaining in his term, Trump was impeached—for an unprecedented second time—for “incitement of insurrection.” More than 700 people involved in the riots have been charged with various crimes so far. While it is often reported that five people died that day, not all five died within the walls of the Capitol as a result of the riot.
Inauguration of Joe Biden
The inauguration of President Joe Biden on January 20th marked a transition in executive branch rhetoric from “America First” to “America is Back.” The legitimacy of Biden’s victory with 306 electoral votes was questioned by former President Donald Trump and his supporters, with unsubstantiated claims of voter fraud used as a rallying cry for the Capitol insurrection one week prior. This particular inauguration was historic not only because a transition of power was achieved despite efforts to subvert this democratic norm, but also because Kamala Harris became the first woman and first person of African American and South Asian descent to serve in the role of vice president of the United States.
Since then: President Biden’s approval rating, at nearly 44% in mid-December, is among the lowest of any polling-era president’s at this point during their term, second only to Trump, according to FiveThirtyEight. But his downward trend is not unusual for a president’s first year in office. Biden’s perceived inattention to the economy and his handling of foreign policies, namely America’s chaotic withdrawal from Afghanistan, are just some of the factors contributing to bipartisan disapproval.
The GameStop Short Squeeze
In January, followers of the subreddit r/wallstreetbets effectively brought Wall Street to its knees by forcing the short squeeze of GameStop stock. In just six months, the company’s stock prices went from hovering around $5 to nearly $350 at its peak. In the days immediately following that peak, it was estimated that short-sellers lost $26 billion in the squeeze.
Since then: Investment app Robinhood found itself at the center of controversy when it halted the trading of GameStop stock on the app on January 28th. A lawsuit was immediately filed against the company for preventing users from investing in the open stock market. The average GameStop stock price over the last year is $165.52. And yes, a movie (or two) is already in development.
Ever Given Halts Global Supply Chain
Ever Given, a massive cargo ship carrying more than 18,000 containers of consumer goods, ran aground in the Suez Canal on March 23rd. For six days, the vessel blocked the passage of more than 400 other ships, stalling an already-tenuous global supply chain. Experts have estimated that the ripple effect was 60-day shipping delays for roughly $60 billion worth of products. It also shone a light on the outdated infrastructure of freight shipping.
Since then: Although Ever Given was freed from the canal six days later on March 29th, it was seized by the Suez Canal Authority and held for more than 100 days as compensation negotiations ensued. The sum demanded by the Canal Authority was initially $900 million, but later lowered to $550 million. Ever Given’s owners, insurers, and Egyptian authorities reached a settlement on July 7th, the terms of which were not disclosed.
The Rise of NFTs
The exact date that non-fungible tokens, or NFTs, were introduced to the world is not consistently reported, and as such, is up for debate. But 2021 can be credited as their most culturally important year to date. On March 13th, Christie’s sold the first NFT artwork—“Everydays: the First 5,000 Days” by artist Beeple—for $69 million. Building on the blockchain revolution, the sale represents a significant shift in the way people create, purchase, and authenticate digital art.
Since then: Countless pieces of digital art and even real-world items have been turned into NFTs. Some examples include the Nyan Cat GIF, Twitter founder Jack Dorsey’s first tweet, and Nike sneakers.
Billionaires are finally selling some of their stock (e.g. Musk and Bezos) and are willing to pay taxes on the gains and all sorts of newsletters are reporting on the significance of the metaverse. All the major investment banks are exploring it. We will be doing a session of the Crisis to Success and Happiness workshop on March 5th on this topic and its vast potential.
COVID-19 Vaccines Available to All
By May 1st, 2021, a year and a half into the COVID-19 pandemic, adults in the U.S. across all 50 states were eligible to receive a Pfizer, Moderna, or Johnson & Johnson vaccination. Both Pfizer and Moderna use a novel mRNA technology to create their vaccines, while Johnson & Johnson’s vaccine uses more traditional, pre-existing information-delivery technology. It was a milestone met by the American public with hope, relief, and, for many, hesitancy. With the introduction of these vaccines and reported cases on the decline, America, and many other parts of the world reopened their economies.
Since then: In the month following the vaccination rollout in the U.S., coronavirus cases hit their lowest rates in over a year. But by July, cases began soaring due to the high transmissibility of the Delta variant. The U.S. has the second-highest vaccine hesitancy rates among 15 wealthy countries polled by Morning Consult, with 28% of people reporting they are unwilling or uncertain when asked if they would receive a vaccine. Roughly 61% of the population is fully vaccinated, falling behind 60 other countries.
Too many headlines are now focused on the booster and the dangers of the Omicron variant.
The Billionaire Space Race
Elon Musk, Jeff Bezos, and Richard Branson all jockeyed for headlines relating to private space travel and Astro-tourism this year. On July 11th, Branson became the first civilian aboard his own rocket ship to reach space—depending on who you ask. Branson reached an altitude of 53 miles above the ground—three miles beyond the threshold of space, according to NASA, the U.S. military, and the Federal Aviation Authority. However, if you adhere to the belief that space begins at the Karman Line, as Bezos conveniently does, then Branson just went, well, really high.
Nine days after Branson’s flight, Blue Origin, with Bezos aboard, reached a height of 66.5 miles above Earth’s surface on its inaugural voyage—four miles above the Karman Line. In true best-for-last fashion, Musk’s company SpaceX launched the groundbreaking Inspiration4 mission on September 15, during which four civilians spent three days in orbit without trained astronauts on board. Regardless of where space truly begins, each flight brought humanity one step closer to the reality of commercial space travel.
Since then: If you have the means, you can buy a ticket to space. As of November 2021, Virgin Galactic has sold 700 tickets and Blue Origin has sold $100 million worth, though the price per ticket has not been disclosed.
Mental Health Dominates Tokyo Olympics
Star gymnast Simone Biles withdrew from the Team USA final during the Tokyo Olympics in July, citing mental health concerns. Her decision initiated an unprecedented conversation about how being a professional athlete, specifically an athlete in the Olympic Games, can exact a dangerous toll on one’s mental health. Biles’ actions drew more social media attention than the highly anticipated and long-advertised interview between Meghan Markle, Prince Harry, and Oprah, according to Newswhip. A chord had been struck. While some lauded her decision as a sign of mental fortitude and maturity, many criticized her choice as weak and selfish.
Since then: Mental health will be a major focus of the 2022 Winter Olympics in Beijing, with athletes undergoing several screenings for depression, anxiety, sleep disorders, and substance use. Team USA will also increase the number of licensed mental health professionals available to athletes, staff, and families at both the Olympic and Paralympic Games.
America Withdraws From Afghanistan
On August 31st, the U.S. withdrew the last of its troops from Afghanistan, following through on a deal reached by the Trump administration to end the 20-year war. While the majority of Americans (54%) agree that withdrawal from the country was the right decision, 40% of people believe it was handled poorly. The Taliban regained control of Afghanistan in just under 10 days, before American troops had completed their evacuation, seizing Kabul on August 15th. President Joe Biden adamantly defended the decision and the withdrawal operation.
Since then: Roughly 65,000 Afghan refugees were evacuated with American troops and Americans living in-country. As of December, about half of those refugees are still waiting on military bases across the country for their permanent placements in the United States. Back in Afghanistan, now referred to as the Islamic Emirate of Afghanistan by the ruling Taliban, many of the freedoms that were earned over the last two decades are being rolled back and replaced by Sharia law. The Taliban has vaguely assured the world that women, who are among the most oppressed, will still be able to do things like attend school or go to work within the bounds of Islamic law.
Biden’s Major Stimulus Plan Fails to Pass
On Dec 19th Sen Joe Manchin of West Virginia said he couldn’t support this stimulus plan. This was good and bad news depending upon your perspective for the human race as a whole. There would be no support to fight global warming and no support for a lot of the initiatives that the majority of the county voted for in Biden. On the positive side there would be no new tax hikes and no increase in the IRS budget to enforce the new taxes and we wouldn’t have a potential increase in the deficit of $6 trillion. But that would help anyone who can get out of the US dollar and into alternative investments.
Since then: The stock market has an immediate negative reaction, but immediately recovers probably because of the low corporate taxes and the idea of Trumps tax reduction plan staying in place.
Until next month,
This is Van Tharp.