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
It’s interesting the scare tactics that financial newsletters have been using lately. They aim for Republican men who buy into the Trump conspiracy theories. For example,
- Trump’s bank account has been seized. Will yours be next?
- America is in Big Trouble Right Now. Why are stocks absolutely soaring, yet at the same time, why are millions of Americans out of work? Commercial bankruptcies are skyrocketing. Not to mention we are in the middle of the worst pandemic in 100 years.
- Warning: Move your money BEFORE April xx. The clock just started on the biggest stock market run in twenty years. And the next couple of months could determine who will become extremely wealthy in 2021 — and who won’t.
- How to get out before the next crash
But the actual keys to understanding the big picture are
- stimulus money,
- few big corporations are folding,
- the dollar is sinking because of stimulus money and if anything, Biden will do more in this area than Trump did, and
- the Trump corporate tax cut, because corporations can now earn as much money trading as they can in their normal business.
The last one is huge. What if you were Apple and 1) you were able to bring in all your overseas cash but pay just 10% tax on it; and 2) you now have $192 billion in cash which you can use to trade and you can actually make a little more in trading profits than you do in regular revenue. Most people think of corporations buying other corporations, but now they only pay 21% on their trading income… long term or short-term gains.
What are the most noticeable changes since last month? The unfunded debt is up by a half trillion in a single month. The trade deficit is up by $37 billion in a single month and the official federal deficit is up by $100 billion in a single month. Notice that the number of US taxpayers in the table continues to rise despite the media emphasis on COVID-19 deaths. Those deaths, by the way, now total over 500,000 which is more deaths than the US had in World War I, World War II, and the Vietnam War combined. COVID deaths really aren’t making much of a dent, however, in world population growth.
I started tracking debt-related data in two more tables which indicate how severe things are getting. This first table tracks bankruptcies, foreclosures, and employment figures — bankruptcies are getting worse, but foreclosures and employment are improving.
The second table tracks money supply figures, credit card debt, and the number of millionaires. We have about 40,000 more millionaires in the US than we did last month, and they make up about 5.5% of the US population.
Notice that we’ve had 8 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 January, Strong Bull again now,
- 100 days – Bull last month, Strong Bull now,
- 50 days – Neutral last month, Bull now,
- 25 days – Neutral last month, and Neutral now.
So now our measured periods range from Neutral for the shorter periods to Strong Bull for the 100-day and 200-day periods.
Let’s take a look at the weekly bar chart below for the S&P 500. The market made about a $7 trillion recovery since the bottom and has been setting new highs again. The S&P made 5 all-time highs during the month of January 2021 and is doing so again in February.
This is my definition of bull quiet for the whole year. Slow steady upwards movement.
The next chart shows the volatility measurement for the last twelve months. At the beginning of 2020, volatility had been in the quiet zone for months and then suddenly it went to volatile on its way to very volatile in March. We have been mostly in the normal range since last summer.
The next 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. January had mixed results also — the Dow and S&P were down while the NASDAQ and Russell were up.
Now most of the major indices are only up slightly for the year — about 1%. But the Russell 2000 is up 11.45% because money is now going into the smaller caps.
Part III: Our Four-Star Inflation-Deflation Model
Three components of the model signaled inflation again in January after doing so in December but the model score went to zero for February. Inflation has been at +1.5 or above for the past six months, but suddenly it’s back to zero? The model assumes Gold is a 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 286.65%. As a result, we will add BTC as the 5th element in our model and we have added prices going back through Dec 31, 2019. We’ll tally the new score with BTC and the old score without it.
Shadowstats.com adjusts the GDP by the original inflation calculation and suggests that we have been in a recession since 2000 with just one-quarter of non-recession. 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 last March. On Feb 28th, 2021, it was 91.04. That’s a 12-point drop in ten months, however, February’s close was a slight gain over December’s 89.94 closing value. Our World Market Model (see the SQN Report article below) has the US dollar ETF (UUP) in red and it has been one of the worst-performing ETFs over the last few months. Last month, UUP was one of the two worst performers in the whole model, however, it has a little better ranking this month at number 12 from the bottom. That’s one reason why the whole SQN® Report and table looks so bullish (green) — everything is measured relative to the value of the US Dollar.
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 a little better? Hopefully — but also unlikely.
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 currency. This is really not so hard to judge because it is already happening. Huge movements are happening in crypto which we’ll summarize in the newsletter on March 17. I think institutional FOMO will take hold on BTC in 2021. There was a scare when it was first reported that Musk had made more money in BTC than he made selling Teslas in 2020 — but then Bloomberg reported he’d lost $15 billion. That’s only possible if he bought his BTC position with high leverage or if he invested a lot more than $1.5 billion. At the same time that was announced, Teeka Tiwari told his 200,000 subscribers to take profits, get out of BTC and to sell a lot of other cryptos. All that happening simultaneously was enough to cause a minor crypto correction.
2) COVID-19 will be around for a few more years. This assumes that many people will not take a vaccine shot and we will be unable to reach herd immunity anytime soon. Also, the vaccines were released way too early with only one of five major questions answered for normal Phase III trials. People taking the current vaccines are basically guinea pigs and that’s why people who have been vaccinated still have to wear a mask and practice social distancing. The CDC and the states report that hospitalizations and deaths are going down. I personally won’t be taking the two mRNA based vaccines but I will take the single dose Johnson and Johnson shot when it is available.
If COVID-19 is around for a few more years, then –
- BTC will have another 300% year in 2020 — 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 new offer to 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.
3) In the last scenario, COVID-19 vaccines prove effective and we reach herd immunity levels later this year. World unrest and economic malaise will improve.
For now, staying at home and limiting your contacts to only a few people continues to be essential. 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 March 2021 Update, I am not going anywhere. This is Van Tharp.