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
The Big Picture, to me, all centers on the impact of massive government expenditures right now. To understand your beliefs about that impact and a few other key factors, ask yourself the following questions:
- What is the impact of all of the stimulus money? People get stimulus checks based upon their income, not based upon whether they need it or not. So for those Americans who have kept their jobs through the last year, it’s just an extra bonus. And many people say they will invest their stimulus money.
- What will the impact of that spending be on the value of the dollar?
- The super-rich are getting much richer and many more Americans are becoming millionaires, What’s the impact of that?
- There is a huge political divide in this country. Nothing like this has occurred since the 1920s – the last time there was a huge gap between the super-rich and the poor.
- Few big corporations are folding. What’s the impact of that?
- And lastly, what’s the impact of the Trump corporate tax cut? Corporations can now earn as much money trading as they can in their normal business. 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.
- Gold and silver seem to have lost their luster while cryptocurrencies are booming. What’s the impact of that?
- About 30% of the US population has now been vaccinated with at least one dose. Now that this is happening, 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 dollars 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 550,000 – more deaths than the US experienced in World War I, World War II, and the Vietnam War combined. At its peak, there were 3,341 deaths per day (7-day average) and now that figure is down to 851. COVID-19 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 and foreclosures are getting worse over the last few months, but employment continues 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 9 straight months in which the number of US millionaires has gone up.
Part II: The Current Stock Market Type Is Strong Bull Normal
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, Neutral 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.
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 very volatile in March. After coming back down, we have been mostly in the normal range since last summer.
The next table shows the weekly changes in March and annual closing prices for the four major stock indices. Last year, the Dow was up 7%, 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.
Now, most of the major indices are up between 1% and 12% for the year. The NASDAQ 100 is up the least but the big companies in that Index face possible antitrust issues in the future. The Russell 2000 is up 12.44% because money is now going into the smaller caps but it’s up only about 1% over the last month.
Part III: Our Four-Star Inflation-Deflation Model
The inflation-deflation model has assumed that gold is a hedge for major inflation and for catastrophic times but Bitcoin seems to be replacing gold for that role. Think about it — would you rather have Bitcoin or Gold in your portfolio right now?
As a result, we added BTC recently to the model. We’ll continue to calculate the score with the original four model components and also calculate the score with BTC added as a fifth component. The scores have been calculated with BTC back through December of 2019. For March, the older model with just gold shows balanced inflation and deflation while the new version shows inflation being stronger.
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. It got much worse in 2020, and it is starting to recover nicely but it’s 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 in March 2020. At the end of December, it closed below 90 and has recovered slightly to close at 93.01 on March 31st, 2021. Over the last year, that’s a 10-point drop. Our World Market Model (see the SQN Report article below) has the US dollar ETF (UUP) in brown but it is no longer one of the worst performers in the whole model as it was not long ago. Other currencies are currently much worse such as the Japanese Yen and the Swiss Franc.
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. We’ve had about a half-trillion-dollar increase in the debt under Biden in just a few months.
Conclusion
Let’s look again at a few possible scenarios that might play out in 2021. I ranked these scenarios from most likely to the least likely.
1) BTC will take over from Gold as the primary protector of value from Fiat currency. This is really not so hard to judge because it is already happening. Huge movements are already underway in crypto which we’ll summarize in the crypto update newsletter on April 21st. I think institutional FOMO will take hold of BTC in 2021.
2) BTC could go up 100% this year, but altcoins are now moving much faster than BTC – a number of altcoins have gone up more than 1000% this year. For example, the following chart shows HOLO (HOT) in its most recent move – an upsurge of 3,833% so far in 2021. Figure 1: HOT is up nearly 4000% in 2021
3) COVID-19 will be around for a few more years but my sense is that its impact will decline fairly quickly in 2021. It won’t be over totally this year, however, because the virus is generating variants and because the whole world is much slower getting vaccinated than the US. (I am saying little in this article about the vaccine but I made a decision not to give my opinions on the vaccines anymore. When I had given my opinions on vaccines previously, people immediately told me I was wrong. That got me thinking about convincer strategies. How do you know a trading system works? Most traders have to do some sort of analysis to be convinced a system works – however it is that you define “works”. And then there is a separate question – how do you decide to trade a system? Some people trade a system before they are convinced fully that it works. As for vaccines – how do you know a vaccine works? Almost no one can do their own analysis. All you can do is believe what you are told –so how do you decide who to believe and what to believe? And then, how do you decide that you’ll actually get the vaccine? And which one? If you know something about your decision-making strategies and convincer strategies, you might ask yourself the same questions for your trading about Covid vaccines.)
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 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.
5) COVID-19 vaccines prove effective and we reach herd immunity levels this year. World unrest and economic malaise improve.
With all of this uncertainty and most people still unvaccinated and staying at home, this is 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 April 2021 Market Update, this is Van Tharp.