Passive ETFs & “Pie Chart Portfolios”: The Hidden Rope That Will Ultimately Choke This Bull

As we look back on 2019 and gaze toward 2020, we remain bemused by a market that is undeniably not a market, but instead the creature of the Federal Reserve.

The recent influx of $1/2 trillion into the repo markets, for example, is just more evidence of the artificial wings behind a market that rises on central bank stimulus rather than economic growth.

As for our bemused attitude, you've likely noted its undeniably bearish tones as to the long-term fate of these doped markets, as we've never doubted for one minute that a Fed-driven market is an un-natural creature destined for an inevitable fall.

Yet despite being the Frankenstein-like creation of a mad central bank, the 29% gains in the S&P this year have rightfully caused most investors to ignore the scary and complacently embrace the gains, however bogus their origins.

We too accept this new abnormal, and despite our long-term fear of the monster securities bubble conceived by the alumni of Jekyll Island, we have been openly bullish on many occasions in 2019.

After all, whenever the Fed adds more stimulus (rate cuts or printed money), we bet on the monster roaring, not falling.

The return of open (yet Fed-denied) quantitative easing in October of this year, for example, made us particularly bullish, and we hope you have enjoyed the subsequent ride up. Read more »

What the Wall Street Journal Isn’t Telling You about ETFs

This week, the Wall Street Journal came out with an article regarding the massive growth, as well as competition and consolidation, within the now $4 trillion ETF market, one that has grown by over 90% in the last five years.

That's all very interesting, but the WSJ article conveniently left out the key risks hidden beneath this industry's otherwise massive growth story...

So today, let's dig deeper and look at the opportunities as well as dangers lurking beneath the ETF market growth... Read more »

FED RED DAY – Fed Rate Drop Fails to Inspire

Here we go again - another near-miss Fed Red Day on Wednesday.

If you are new to Critical Signals Report, we describe Fed Red Days here.

In short, Fed Red Days occur on days that the Fed lowers interest rates (that's supposed to be good news in a Fed-manipulated Twilight Zone), but markets nevertheless close lower (that's bad news).

Good news is supposed to take the markets up... not down. Down is red - it means your stock investments probably lost money on a day that the Fed lowered rates - hence "Fed Red Day."

This is equally "bad news" because it's signaling that the Fed's magical powers are losing their "magic," and given the sad fact that today the Fed is the market, such red days are particularly disturbing signs.

Today, the Fed lowered interest rates by the expected 25 basis points (0.25%), taking interest rates down by a total of 0.75% since the first rate cut back on July 31 of this year. That's a 30% rate cut since July, but just 0.75% in basis points, raising the question as to whether cutting rates that are this low really matters anymore.

Here's what happened...

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The One Company That Tells You Capitalism Has Left the Building

Spoiler alert: It's WeWork.

Earlier this month, we saw how stock buybacks and "pump 'em and dump 'em" schemes not only distort market price action, but make executives unfairly rich at the expense of their shareholders.

Such practices, once deemed illegal by the SEC, have now become customary components of modern capitalism.

Today, sanctioned fraud has become a keystone of modern market action - from QE front-running to executive malfeasance.

Values in stocks may be going up for now, but ethical values have hit a new low, and they will eventually bring investors and markets down with them.

And nothing symbolizes this ethical black hole and market risk better than the IPO that almost was - WeWork...

Read more »

The Scary Truth Behind Earnings Season

Earnings season is back, and so is the distortion. In the backdrop of what are now undeniably central bank-driven markets riding a decade+ wave of pure (and historically unprecedented) “intervention,” I’m often asked if fundamentals even matter anymore. Below, I’ll... Read more »

What to Watch Out for On Columbus Day

Welcome to What's Happening Now.

Last week was heavy on market breaking news, namely on tariff negotiations, Brexit, and a missile attack on an Iranian tanker.

Today, Columbus Day, is often an odd day in the markets with bond markets closed so stock trading may be muted, even though the global economy continues to flash warning signs above your money.

Let's discuss...

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You’re Now Entering the “Twilight Zone” – Here’s What to Watch Out For

Last week was crazy in the markets, and this one will likely be no less so - if not crazier.

When you add up all the irrationality out there, and whimsical behaviors on the part of investors, we're definitely in a twilight zone of monstrous proportions.

Last week, the equity markets showed both their sane and insane sides: sane for dipping on sagging macroeconomics and insane by rallying at week's end on a bet (frankly, a guarantee) that the Fed will lower rates again this month, and then again and again...

But it's these low rates (now negative in Japan and Europe) that got us into this pickle in the first place.

Sure, in the near-term, low rates buy time and a rationale for dip-buying.

Longer-term, however, the debt bomb they create will eventually explode and money will burn.

When will the insane get sane? That is, when will markets stop rising on bad news?

Again, we saw a smidgeon of that last week, until the insane reappeared, almost on cue.

Let's discuss...

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Executive Rats are Jumping Ship as the Volatility Iceberg Looms

You may have noticed that yesterday's markets saw an intraday swing of 450 points.

Volatility has once again reared its ugly (yet oh-so-predictable) head.

Last week the volatility came from our broken repo markets. This week, it's the painfully awful ISM services index data that's sending the markets into yet another hissy fit.

The ISM data measures the health of the non-manufacturing sectors of the economy, and they are anything but healthy numbers - just a couple percentage points away from full-on contraction.

And you can bet that's reason for concern.

And yet by the day's close, markets rebounded on this bad news.


You betcha...

Read more »