Last Week's Bigger Ups and Downs Just the Beginning?

Bigger swings up and down summed up last week. We talked about this. It's happening now. Will it continue? 

Well, it's only been a couple of weeks. And those couple of weeks began in September and spilled over into October. September and October have a reputation of being tough weeks for the stock market. Based on this, it will continue.

Other assets have had swings too. Bonds and Precious Metals took hits in the last couple of weeks. It's almost as if the markets decided we all get to suffer together, one be (un)happy family. 

When everything gets rattled, it can be sign that something's not right. 

With that in mind, we performed our usual month-end review and analysis after the market's closed on September 30th. That review did not provide any overwhelming anomalies or divergences (which we've discussed in the past) to lead us to any firm conclusions. Does that mean that we ought to set aside the thought that something may not be right? Not really. 

First, we all know that the Fed continues - despite it's talk of "taper" - to take extraordinary measures to, one assumes, keep "things" held together. Things here refers to markets and the economy. That's why our last two posts asked whether the Fed had prevailed when we began to see more wild swings and shakiness in markets. And they did seem to have prevailed at that time. Indeed, the argument can easily be made that the Fed has undertaken this endeavor in extraordinary ways at least since 2000 - the onset of the "tech wreck" in the stock market (which dragged on for three years), overlaid with Y2K (remember that?), 9/11 (which we all remember) the real estate boom debacle, and what we'll call the Great Rescue efforts after 2008. We've studied all this from different angles. You should too, if you want to get a grasp on what's going on now. But we don't have time to dig any deeper into this right now.

Continuing on, with our month-end review having left us with more questions than answers, we turned to our "Brain Trust" - those advisors, most of whom we pay for analysis of the current state of affairs and some degree of prognostication about the future of markets and the economy. Since we try to get input from those with different experience and expertise, and actively solicit contrary opinions to those that seem to somewhat agree with our own opinions, the results of such a survey are typically mixed. This time was no exception. However, with one exception, our sources have become extremely cautious about the major stock market indices: Dow, S&P, NASDAQ.

The exception ought not to be dismissed lightly. With a stellar track record of identifying both opportunities and risks in various markets (in addition to just stocks), he was calling for a "Melt Down" in stocks until around mid-September, when he abruptly reversed his stance. Claiming the available evidence indicated that the "Melt Up" (which he had touted previously) was indeed not finished, he offered advice on getting aggressive with stocks, particularly NASDAQ stocks. Of course, had we followed his recommendations in any substantive way, we would have immediately incurred losses amounting to roughly 10% in any positions taken. We didn't.

But that doesn't mean he's not right. You can catch trends, but rarely does one nail the timing to the day when it comes to when to actually buy or sell. We'll find out in the coming months whether he was right this time, as he doesn't see any Melt Downs until some time in 2022.

As for our other sources, all being in agreement that one ought to be reducing stock exposure, if not preparing to actually short stocks, we found all to be positive on Precious Metals for the longer-term. Within that group, cautions that in any stock market sell-off/melt down, precious metals would sell of as well. And, indeed, that's what happened in the 2008 sell-off, as well as the violent, albeit brief, sell-off in stocks in March 2020. 

However, offsetting this, we found one observation from another sources particularly insightful. In those previous sell-offs, Precious Metals (which here would include not only the actual bullion, but also the mining companies that extract the stuff from the earth) had experienced prior run-ups. For the 2008 sell-off, using Gold and its mining companies as an example, these had historic run-ups beginning around 2000. They fell from a high point. For March 2020, a similar run-up from 2019, albeit more modest than the run-up from 2000-2008, had occurred. In both cases, after the sharp drop, the run-ups continued. In the case of 2008, these extended to around 20011; in the case of 2020, the run-up begun in 2019 continued after a brief fall, until the historic high price in August 2020.

But our sources notes that since August 2020, Gold has been in a general corrective trend. Contrasting this with the situation of 2008 and 2020, where Gold had been in a strong uptrend, he wonders whether Gold - and by proxy other PMs, will follow the stock market down, when that time comes. (NB: "when" not "if".)

This insight may or may not be important to you. If you don't now, or are not planning to allocate to PMs, at best it might be interesting. If you are, however, it could prove valuable if stocks do indeed tank.

Which brings us back to our original question: Are last week's bigger ups and downs just the beginning? Beginning of what? More and wilder ups and downs? If that only, some of us may want to ride it out - despite the emotional ups and downs that likely would accompany such a ride. Others, who might see these volatile gyrations a precursor of an ultimate Bear Market in stocks, may have no interest in holding on. (Unless, of course, you're of the ilk that believes in trying to milk that last nickel out of a market destined to fall into the pit. Good luck with that.)

But however these bigger ups and downs ultimately play out, a more important drama has unfolded. It's one that has taken and will take a huge toll on many of us. It's related, of course, to "the vaccine."

Mandates have now taken hold and are being enforced in various ways in varying degrees. Some companies and public institutions have already fired folks who have not complied with the requirement to be jabbed. Others are just gearing up for whatever their ultimate process of enforcing a government-mandated policy that includes stiff fines on companies with 100 or more employees who do not enforce the government mandate that every - as in EVERY - employee be jabbed.

We don't have time to get into the implications of this policy and its current and future manifestations. But we suspect said policy will ultimately have its say in how markets behave now and in the months - if not years - to come. But even if we set aside the behavior of markets, which have never been ever tame and gentle, the actions of governments and their corporate minions have already infected our society in ways none of us may have imagined possible.

And this, I fear, is just the beginning.