A shameless plug for starting a Substack is installed below. You really don’t have to connect to my network. I would advise, given what I think will be a deep acceleration of internet censorship around the world this year, that you should make your voice heard if you have something to say and like to write.
MNQH23 Monthly Chart with AB=CD Patterns and Volume:
MNQH23 Weekly Chart with AB=CD Patterns and Volume:
MNQH23 Daily Chart with AB=CD Patterns and Volume (BULLISH):
To save time related to a technical error in chart storage, MNQH23 Daily Chart with AB=CD Patterns and Volume (BEARISH) chart would end up giving the same bearish result for an ultimate price symmetry target of 8999. The best BULLISH target one can hone at the moment on the daily chart would be 12470.75 with a potential rally back to 13076.
I am not going to invest time today in developing precision in terms of technical price targets. I will devote my time to information surrounding this chart provided for me by a money manager, taken from the Financial Times of London UK, that shows just how horrible 2022 was to the typical retail and/or retirement investor with a balanced portfolio of stocks and bonds. Here it is:
This chart was developed by Robert J Shiller and TS Lombard. As you can see the total return was basically -17%. That is the worst performance ever, going back as far as 1871. Let that sink in for a moment, that is, it was the WORST PERFORMANCE EVER.
When I was a young investor, 1987 was a sucky year as I really did hardcore research on tech stocks and large-cap stocks and made a lot of money. Had I not invested in Treasury strips in an IRA, my butt would have been totally blown up (and I had amassed a nice sum of money) in 1987. I had knowledge of technical analysis ( as I was one of THE first users of Metastock), but I was unprepared for the pressure of re-escalating rates and (even during the Reagan era) so-called “strong dollar policy”.
What I think Is Going On for 2023 And Beyond
In today’s environment, everyone from corporate wonks or small business people in their 40s and beyond to Boomers got a massive haircut in their retirement accounts, and will likely have ANOTHER ONE next year or in coming years if the true risk-free rates of return are not restored in all investment markets. That would also mean, despite the insane ramblings of corporate cable media about a “Fed pivot” to decreased rates, investors will have to suffer perhaps three or more bad years like this last one before the Federal Reserve and the man on the street can figure out what the true duration of the yield curves of US government and municipal bonds should be. After that, corporate bonds, and in particular junk bonds, will have to come into proper alignment. If rates are cut again, the cheap money that can be printed by Congress and injected back into the banks, all that money will run back into what I consider for now the “Wall Street Casino” and the drunken market party will continue again, until at some point, no nation on earth, including our own, will want to own them. That will be a cause for the ultimate disaster in market return. The “rainbow stew” promised by the current American administration will suddenly be gone, and people could truly be struggling.
But that day when US debt will be rejected will never happen, right?
Well, think again, Kosmo.
This may be an unpopular opinion, but then most of what I said would happen in the future (that is happening now) wasn’t popular either. In 2023 and beyond, the US dollar, and this America, will not have the pricing exclusivity for Saudi crude oil and as time progresses, ANY world commodity, like copper, gold, or other heavily trading industrial or agricultural product, as the Saudis and Chairman Xi of the People’s Republic of China have basically come to a 40-year agreement to price Saudi oil in yuan and NOT US Dollars. Because of the blatant malfeasance (and quite frankly, idiocy) of the resident (not a typo) of the United States, Joe Biden, we have so destroyed relations with Saudi Arabia (and other allies) that these nations are making agreements with geopolitical opponents and economic competitors.
What does that mean, you ask?
Potential (and now real, if things progress) LOSS Of Strategic Reserve Currency
Many of you read a post I wrote way back in early 2010 in The Buffalo Trader, in which I quoted the President of the Bank of India. He complained, rightly in my opinion, that with the United States dollar’s position as the strategic reserve currency, it could (and it did) export its inflation to other nations, damaging their economies.
What the United States under Biden has done is essentially cede strategic reserve currency status to China and the BRICS nations (Brazil Russia India China and South Africa). If that agreement holds up, over time all commodity prices will begin to be priced in yuan or other BRICS currency, as that currency will be converted from a fiat currency to a currency backed by a market basket of commodities.
The US Dollar is a fiat currency. That means it is worthless. It has no backing. Once we lose strategic reserve currency status, we cannot print endless trillions of dollars of worthless currency through quantitative easing or another canard. If it prints, it must borrow on world markets and compete against a valued currency. What will that mean to rates? In the absence of any other monetary action, it will mean that rates will rise and costs to produce will escalate. It will in its first form be quite inflationary. We will be much like Australia in terms of industrial commodities outside of oil and natural gas. That will cause wide swings in the cost of building and industrial materials and likely create shortages in some of them in our domestic markets. Want to try to predict American corporate earnings in that kind of environment? If you said no, you have taken your first step in financial wisdom. Your timing would be incredibly bad though because had the United States not done such a dumb thing as shut down our own energy production and destroyed our relations strong with Arab nations, none of this had to happen.
Do you think equity prices will be stable and growing under such insane industrial pricing environments, now that the dollar has lost reserve currency status? If you said no, you are once again on your way to financial wisdom.
There are still people alive who remember the hyperinflation in Britain during the 1950s to 1970s. “I’m Backing Britain” slogans became catcalls as British standards of living were collapsing in 1967 and 1968. It has continued on pace pretty much ever since.
We could see the very same thing happen here if we do not set our energy and commodity markets free to produce again. Time has gone beyond the point of running out. Action needs to be taken immediately to correct this government-created insanity.
Food and Energy Prices Will Rise Again
Food prices will likely rise significantly because of nitrogen fertilizer restrictions and more intrusive Federal regulations. To look at a list of potential shortages, read here. Notice that one of the foods that will be in short supply will be corn. What is corn used for? You got it. ETHANOL FOR GASOLINE. I mean you have to pay the corn lobbyist don’t you? You need to destroy engine parts and reduce gas mileage, otherwise, the lobbyist cannot enjoy his filet mignon. Right?
Energy prices will spike again once sanctions are pushed again and American energy infrastructure is shut down more widely. I will discuss this more in future posts.
Housing Prices Will Likely Suffer More in 2023
Housing prices will suffer both from rate hikes and market distortions, depending on your city, from private and corporate residential real estate investors. This video provides a good summary of what is happening and what could happen as the year progresses.
I Don’t Care What Anyone Says, We Are In A Universal Asset Bubble The Likes Of Which We Have Never Seen Before
One reason I am not particularly bullish on equities bonds or even real estate boils down to the question of what the real cash-on-cash returns of businesses are. If you run a business and you are not cash flow and earnings positive, YOUR BUSINESS WILL DIE, PERIOD. With public companies, at least since 2009, that has not been the case. That equity price expansion party is going to and going to have to die hard if our economy is going to normalize anytime soon.
Sector rotation, seasonality, or timing are all great nuances, but in a time where asset bubbles exist, all of that crap sort of goes out the window when it comes to true profitability. The ease of money printing, borrowing, and corporate debt creation has created companies that can extend debt “almost forever”, creating zombie companies that would die under any moral measurement regime for calculating risk.
Mike "Mish" Shedlock, who writes the blog “Mish Talk” discusses this matter in this insightful article. While consumer inflation rages, are we also going to see asset deflation in investment assets as rates normalize? He makes a great argument that it has happened and is happening now.
One thing he does not address which is far more pernicious than this is a scenario of the loss of strategic reserve currency by the US dollar as all this is going on. How can businesses price and store inventory when it is impossible to project what prices might be even three months in the future? Business stability and the concept of a business going concern status would be deeply threatened in such an environment. Without a stable currency and a stable interest rate structure, running a business in the United States will be a nightmare in the future.
When I watch the talking financial knuckleheads (often called gurus) tell you that “there has never been a 10-year period where the US stock market has not earned 10% per year”, I laugh and feel sick for investors at the same time. If you have read Ed Eastering’s book, you would realize that across history the US Stock market has basically delivered a 6% return per year on capital gains, and with dividends, an additional 1% on average for a total average of 7%. This goes all the way back to the 1880s.
What Americans and the world will likely have to deal with for a long period of time is many years where equity and bond assets will underperform spectacularly as the Japanese stock market did in the 1990s or as ours did from 1929 to 1954 (the time it took to breakeven from the start of the Great Depression). If we remain in a physical currency world, we will have to back our currency, and measure management accounting and financial accounting of earnings, liabilities, and assets, or face perishing economically.
Conclusion:
As far as stocks go, in 2023, we will have to deal with the real quality of assets and their true value, and likely have to face deflationary asset pressures, even if the government still wants to print money forever. I think people in the United States are waking up to the fraud and will push back. If not, we have a world of problems ahead that will upend our civil society, or what is left of it, forever.
The funny money cannot continue unless the United States goes the route of the EU to create a central bank digital currency and basically force everyone into some kind of universal basic income. By that time, the government will control every aspect of money and the economy, and every aspect of your life. The EU will find out about this as it is rolled out this year. Let us hope America does not follow the ways of the fascist WEF and UN. Anyone who studied world history knows that serfdom is perpetual slavery.
There are tons of social issues that can be plugged into this that I have no time to do today, that I perhaps will cover in the future. Free markets will be in a direct faceoff against global fascism beginning this year.
Governments, worldwide, seem only concerned about their power control and wealth. How else could a NY legislature vote itself a 30% annual pay increase? Do politicians have no shame? If you answered yes, you are indeed awake at a deeper level in your financial wisdom.
The only question is, what are you and I going to do about it? That is what 2023 will be all about in the financial markets. We shall soon see.
I am done writing for today. Thank you for supporting this blog!
I will decide whether to cut the weekly update sections to once a month. I will post a survey shortly to see what you think.
More will come soon. Happy New Year 2023!