Gold And Silver Days Of Extreme Volatility

Last week the Dow Jones saw new all-time highs on Thursday and Friday, but this week it saw none, closing the week -1.07% from last week’s close.  Is this the pause that refreshes? It very well could be, and then maybe not.

One of the things bothering me about the stock market is what’s happening with new 52Wk Highs and Lows at the NYSE. In the table below, every day except one of the past two weeks closed with more 52Wk Lows than Highs, and since September 4th seeing more daily 52Wk Lows than Highs has been the rule, not the exception.  

Compare the current table (lower portion) to how the market was performing in January; there’s quite a difference. This could go on for weeks, seeing the Dow Jones moving higher as the NYSE produces more 52Wk Lows than Highs; it has all September.

Nonetheless this isn’t right. Though everything appears normal in the living room, somewhere inside the wood work the roaches and termites are on the move.  Maybe in the link here to CBS News has some insight on what’s going on.

‘”Insiders have been committing lots of money for stock buybacks, and they’re not doing buybacks because they think stocks are cheap. They’re doing to it to pump up the stock so they can sell it,” said David Santschi, director of liquidity research at TrimTabs.”

– CBS News 26 Sept 2018

These insiders are the best informed investors any company will ever have.  They’re the corporate officers possessing intimate knowledge of the company and the industry they operate in.

People who know more about the market than either you or I do are looking ahead, and they don’t like what they’re seeing.  Well, I don’t know what they know, but I do know I don’t like the 52Wk H&L action on the NYSE. As we enter October, my gut feeling is the stock market is now offering investors increasingly more risk than reward.

But what really bothers me about this story is how insiders are burdening the corporations they manage (not personally own) with debt service in the bond market to provide themselves with a short-term gain at the long-term expense of their shareholders. And who are those shareholders? Largely financial fiduciaries managing pension and mutual funds, charitable trusts and insurance companies’ financial reserves. Well, this is the world we live in.

Another factor weighing against the stock market is the FOMC is determined to increase their Fed Funds Rate to higher levels. They’ve increased their Fed Funds Rate to over 2% this week, minimizing the gap between Fed Funds and the 30-yr T-Bond yield to about 100 basis points. That plus they’ve promised to do it again in December.

Before Alan Greenspan became Fed Chairman in August 1987, the Federal Reserve didn’t make any public announcements concerning “policy” – PERIOD.  The secrecy the Fed worked in resulted in a situation where from 1913 to the mid-1970’s, many Americans were unaware of the existence of the Federal Reserve.

Back then the financial system was on sounder grounds, largely because knowledgeable investors and financial institutions feared becoming too leveraged in their positions because they didn’t know when or by how much the Fed might change interest rates.  

However that’s not true today. In the post Greenspan era, it’s the Federal Reserve who now fears what might happen should they surprise the market. No one knows better than members sitting on the FOMC there are bubbles in the financial system as far as their eyes can see.