The video gives you a technical outlook on MNQZ22 for the following weeks, but I want to discuss what might underpin the price action moving forward.
I am going to post a link to local WORD radio talk show host Tara Servatius in this edition of my blog. She is conservative or rather conserve-aterian. She tends to skewer everyone, and she states some of the concerns I have that could have effects on markets. The Audacy app is an abomination, so I would suggest you listen to her podcasts on Spotify, which is easier to sort and maneuver within. You might ignore her comments on censorship (even though I agree with her and may further expand on that topic in another post), but her economic comments make sense in context.
Is fear in markets justified at this point or is this just the maximum pain level we will see before the sun miraculously shines and the markets continue their journey, seemingly to infinity as they have for the last nearly 4 years?
Let me count the ways that it is justified:
SPR DEPLETION: The draining of the Strategic Petroleum Reserve (SPR) combined with restricting oil production perhaps under 8 million barrels a day to jack the cost of energy into the sky after the elections. Take a look at this image (from EEAGLI):
What the Biden administration has done is to nearly empty completely the SPR to help temporarily drive down oil prices to “prove he can reduce the cost of energy”. In reality, as Janet Yellen mentioned in the podcast, this is a part of the transition to “clean energy” and is a necessary part of the transition to that nirvana. In the process, the business will be slowed down as energy becomes scarce and prices rise and of course, jobs will be lost in the process. What will happen when the SPC is no longer tapped? (Think of it this way, it’s only 30 days until the mid-terms as of this writing, and we only have 23.7 days left as of earlier this week, and you cannot drop the SPC below zero, can you? (saying that with a wry smile on my face)). Given the fact that OPEC+ just cut production by 2 million barrels a day, what do you think happens after these elections are over?
That’s right kids, ( assuming any of you had even a basic economics education which after 1973 is highly doubtful ) oil, gas, diesel, and all other downstream petroleum prices will skyrocket!
And as Commander Negayellen (what I used to call Janet Yellen as Fed Chairman when she proclaimed that she would keep negative interest rates in place as long as possible to sustain growth in a speech at Davos) stated in the podcast, as those prices began to skyrocket, that the Biden Administration would use price caps to control the damage that the price increases would have.
What will THAT do? None of you remember the 1970s, but when that was done, there were supply shortages, as companies could not produce the product at a profit. That leads of course to lines at gas stations, transportation disruptions, and cost spikes for most businesses. That could cause layoffs, business closings, and more taxation by market distortion to the middle class making them poorer. Can you say stagflation? I knew that you could.
For an incredible write-up on the current overt market price distortions in oil and other energy commodities, read Doomberg’s brilliant post.
Things like that would probably depress earnings for companies, even the ones on the $SPX. That leads me to point 2.
2. REDUCTION IN S&P 500 Estimates: Some smart hedge funds, investment managers, and market analysts may be figuring out what I just mentioned above. They have in fact lowered estimates for S&P 500 companies. It looks like they’re down about 6.6% on average. What will tell the tale of this outcome is what companies will be projecting for Q4. We already know that companies like Amazon are delaying warehouse deployments, closing others, and laying off workers. That would put pressure on money managers to take profits or realign portfolios, even though most of the major adjustments have been made prior to September 30, since that is a quarterly reporting period for most managers and mutual funds. Still, if the energy cost tsunami is coming, as it might, some investment managers and retail investors may once again slam the sell button if the results turn out to be worse than anticipated. The other thing that is a worry is that corporate credit spreads are rising as the Federal Reserve jacks up interest rates out of necessity.
3. STATE PENSION PANICKING: Some state pensions are tired of investing in ESGs, particularly when they are designed to destroy their state industries. Louisiana tactically booted Blackrock over their “green” ESG stance that castigates oil and gas production. As state pensions reject ESGs and earnings decline, the whole problem with underfunded state pensions will escalate, and that could put pressure on equity markets.
At this juncture, I will not even discuss the central bank digital currency issue, but one must admit that the wanton destruction of the energy infrastructure, and thus, the US economy, does seem to be a move to force a programmable currency on us that would control our spending and ultimately our freedoms to choose. Programmability means that the currency can be tracked, as Fed Chairman Powell has mentioned, it is trackable to you. The greatest fears of such a system are summed up in this video tweet. It would essentially become part of the same social credit system that is used in the People’s Republic of China
The question is, can all of this deteriorate the fundamentals of the US stock market, including the NASDAQ? The answer is yes.
Will it happen? I have no idea, but if it does hit hard, all those large monthly green bars on the MNQZ22 chart will melt away, and we could be back to where we were in April and May of 2020. Will it get worse than that? Once again, I am not Nostradamus, but some course correction in economic policy and in energy infrastructure, exploration, extraction, and refining must be made, or the problems could literally cripple the US economy for decades, and bury real equity growth for most investors.
That is all for me this week folks. Thank you new subscribers for showing up here. If more of you come, I will try to upgrade what I do here. I want to share good information with you and learn also as I go.
If you have questions about anything, leave them in the comments, Once again, THANK YOU FOR SUPPORTING THIS BLOG!
