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    Market Update: Stocks Plunge!

    And why a rising dollar may add to the carnage
    by Adam Taggart

    Friday, September 4, 2020, 8:52 AM

What a difference a week makes…

As of the time of this publication, over the past day and half, the S&P 500 has fallen by -5.5% and the Nasdaq by -9%.

As we have long been warning, tops are processes, which can take months to play out. But corrections are events; they happen quickly — oftentimes leaving you no time to react.

Case in point: just look at Tesla (TSLA). On Tuesday, the stock hit an all-time-high of $500/share. Investor confidence was off the charts.

But now? It’s down to $380. That’s a 24% drop. In just two and a half days.

Given the (over)confidence the months-long rally had imbued them with, many recent investors in Tesla were buying call options vs the underlying stock. Given the current plunge, those call options are now totally worthless. A LOT of people, many of them neophytes who didn’t appreciate the risk involved and who can’t afford these losses, have just gotten badly burned.

Of course, TSLA is just one example. The current carnage in the markets is widespread, across all sectors — exactly as we’ve been warning for months was likely to happen.

And yet, there’s another factor that may add additional surprise for investors into the mix: the potential that the US dollar may strengthen substantially from here. That is a move that today’s markets are definitely NOT expecting, with shorting the USD currently being one of the most popular trades.

This week’s guest expert, Brent Johnson of Santiago Capital explains the Dollar Milkshake Theory and why he predicts the vast one-sided trade against the US dollar is dangerously wrong. In the short term, if surprised by a sharply-rising dollar, markets will likely sell-off further.

Those watching these weekly Market Update videos know well that we’ve been warning for months that this is one of the most treacherous times ever for investors. The “unstoppable” rally may very well have just ended and, given the massive over-valuations that still remain as well as the persisting damage to the real economy, the bottom may be far lower than current market participants can imagine:

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Anyone interested in scheduling a free consultation and portfolio review with Mike Preston and John Llodra and their team at New Harbor Financial can do so by clicking here.

And if you’re one of the many readers brand new to Peak Prosperity over the past few months, we strongly urge you get your financial situation in order in parallel with your ongoing physical coronavirus preparations.

We recommend you do so in partnership with a professional financial advisor who understands the macro risks to the market that we discuss on this website. If you’ve already got one, great.

But if not, consider talking to the team at New Harbor. We’ve set up this ‘free consultation’ relationship with them to help folks exactly like you.

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12 Comments

  • Fri, Sep 04, 2020 - 9:27am

    #1
    dryam2000

    dryam2000

    Status: Bronze Member

    Joined: Sep 06 2009

    Posts: 416

    Enjoyed the interview, but....honestly don't agree on USD spike

    I really like Brent Johnson.  I've listened to a lot of his podcasts, and highly respect his intelligence, financial knowledge, and I think he's as much of a standup guy you'll find.  However, I think it's not the full story on the USD.

    One thing to consider:  the financial system is a very interrelated complex dynamic system with negative feedback loops within that system.  If/when the DXY spikes in any type of appreciable fashion then there will likely be (immediate) negative feedback from the rest of the world which limits how high the dollar would otherwise go....and I suspect it will never no much higher than it's current level, and cause other unintended financial consequences.

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  • Fri, Sep 04, 2020 - 9:43am

    #2

    Mark_BC

    Status: Bronze Member

    Joined: Apr 30 2010

    Posts: 398

    Mark_BC said:

    I wouldn't say those TSLA options are totally worthless. They have for sure gone down a lot. But unless you were foolish and bought very short dated calls they will still have value and will go back up when the stock price goes back up and be back in the money. Which of course it almost certainly will because Tesla makes no profit so it relies on a continually increasing share price for cash. Although I recall last week the Fed announcing that it was going to just give corporations money directly, so who knows how that might affect things.

    TSLA has had way worse crashes than this and it quickly rebounds and more. I'm buying the dip right now and I'm overweight AAPL and MSFT calls. I'm counting on a rebound soon.

    Edit: as proof that TSLA calls still have value, I checked them out to see how much they were and they are still too expensive for me to buy... I can't even afford one lot with my free cash now.

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  • Fri, Sep 04, 2020 - 11:10am

    #3
    MKI

    MKI

    Status: Member

    Joined: Jan 12 2009

    Posts: 241

    Market safety

    Glad you got Brent Johnson. Adam you are a machine! Working tirelessly while the rest of us sleep...

    as proof that TSLA calls still have value, I checked them out to see how much they were and they are still too expensive for me

    People forget that in 2000 or so AMZ fell from about 100 to single digits. We are likely approaching much greater heights ahead before this bubble's crash.

    Why are stocks getting so high and can't keep a decent correction for long? I think because index funds are driving the market. Trading stocks has become so easy and free I expect this bubble to get to much greater heights before the boomers have to start pulling out.

    But risk is minimal for intelligent investors; with free trading, just keep stop losses firm using big stocks or a liquid ETF like VTI. And these mini crashes are a great way to test your stop-loss process. Myself, I always reset once it's 1% above the last buy then keep nudging it up monthly.

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  • Fri, Sep 04, 2020 - 12:22pm

    #4
    dryam2000

    dryam2000

    Status: Bronze Member

    Joined: Sep 06 2009

    Posts: 416

    FWIW..

    Saw this today.  Relevant to discussion on the USD and tech bubble.  The punchline from the author is that the USD may start it's inexorable decline when U.S. tech, which has been levitating the markets, starts to bend.   Let's see.

    George Soros' Currency Framework | Macro OpsAt any moment of time there are myriads of feedback loops at work, some of which are positive, others negative. They interact with each other, producing the irregular price patterns that prevail most...macro-ops.com

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  • Sat, Sep 05, 2020 - 4:12pm

    #5
    Daniel Hromyko

    Daniel Hromyko

    Status: Member

    Joined: Feb 06 2010

    Posts: 12

    Comments on Value

    Tesla isn't worth anything, in fact it's worth far, far, less than nothing. I suppose it is good for accumulating wealth that doesn't exist and eliminating it. Anyone that needs to be convinced that the stock market is a massive bubble is too far gone to survive in reality. It took less than a minute to see that Tesla has lost money every year for 10 years? WTF?

    I've been hearing about how we dumb Americans didn't know how valuable our personal and meta data is, and basically gave it away, like in the story of how Native Americans traded Manhattan for a chest of beads and trinkets. I don't believe it. Just another bubble.

    Alphabet, the avatar of Google, $2.242 trillion and Facebook, $866 billion are worth over 3 trillion dollars last week. How big is a $100 million building?  How about a new ten story 500,000 sq. ft, high-tech bioscience building in New Haven Ct., or a 386 unit Town Home Community/Building in Bethesda Md.

    Lets buy 30,000 $100 million dollar buildings. Will $300 million buy a sports stadium? Let's get 10,000 of them. Maybe not. $600 million aught to cover the cost of building a nice sports stadium. Let's buy 5,000 of them, 100 stadiums for every state. Are Google and Facebook worth 30,000 $100,000,000 buildings? Is Tesla worth 4,000 $100,000,000 buildings? Is a retail sales and home delivery facilitator worth $1.7 trillion? What is going to be delivered when China decides to stop filling up our landfills? They sure don't need America, they can trade the goods they make for the resources they need, and get a far better return than shit from assholes.

    Have you ever considered Mr Taggart, that gold is shiny like trinkets and beads? That it is only worth what it can purchase, and gold is not money? Federal Reserve Notes are money in America, along with credit and debt, though debt that can't be paid won't be paid, so I don't know how the issues surrounding digital dollars will end, but I'm pretty sure cash will have value after the hyperinflation of financialization collapses and digital dollars disappear in to the void from which they appeared.

    The one group of people on this planet that I am certain understand the exponential function, are the people that control the Fed and the Treasury. Contrary to what I have heard Mr Martenson express, they are not stupid, they are not grasping for solutions in the dark, they know exactly what they aim to accomplish, or the alternative is that by coincidence the Fed, like fools and drunks are protected by God, have inexplicably kept the economic boat afloat beyond what Mr Martenson has  stated he could imagine 10 years ago. They know, and have known the current monetary/banking system must end. Like George Carlin said it, we are not in the Big Club, and "they don't give a fuck about you. They don't give a fuck about you. They don't care about you at all. At all, at all". So, what are they going to do as "we the people" become an increasing liability? A threat?

    1 Charles Hugh Smith wrote on his blog "Here's Why the "Impossible" Economic Collapse Is Unavoidable." It's a description for how businesses and industries when they have a fixed cost that can't be met unless they are running at, or near full capacity,  soon won't run at all if they can't.

    I have never heard anyone explain how cascading system failures can be avoided, and now at this stage, what I have always feared, close to 20 years now, is that there is no escape other than Martial Law, but how could Martial Law succeed in controlling the population, and an economy to support the military and the population too? The population of America is too far removed from the calories they must either have, or die, and each calorie we consume requires 10 calories to produce.

    Everyone on this website that has been around for a while, was drawn here by the Crash Course so to speak, must know that America as a country took a turn that led away from reality quite a while ago, and now reality is going to assert it self, but it seems to be unrecognizable, even to everyone that felt the ground shifting under the weight of the Fed's Repo Operations. Mr. C H Smith, like the Town Crier, called out that normal was over, and normal was no more, and now I'm doing it too.

    A typical person has 5 liters of blood in their body, and if the most they could ever have was 4 liters they'd be dying. Cascading system failures would be death. Running on four liters is where we were after the 2008 meltdown, looting the blood bank was the solution, we are living in the Wile E Coyote moment now, and I'm the idiot that wrote the message on the sign Wile E Coyote, Genius holds up the moment before he  plummets downward. The economic system that built the roads, the houses, planes, trains, sky scrapers, shopping malls, and Wall Street is over, ran off the cliff, and broken. What has been our life support will soon no longer function. Can anyone explain how hive animals (we are not, but live as such) that are hyper-networked survive when hives abruptly no longer function?

    How perpetual growth economies end was written thousands of years ago. The Tower of Babel Fable as interpreted by magical thinkers has no particular distinction for why the story was created and/or the lesson to be learned. As a lesson in economics the collapse of the tower, the debts and credit irreconcilable in an environment with a failed economy speaks to societal collapse and dispersion, and the confusion of languages representing claims and counter claims like what happens when banks cease to pay debt or extend credit because trust has vanished so commerce and communication stops. The lesson to be learned is worthy of the fable at least.

    I'd love to be wrong and have any errors in my reasoning corrected. I have some precious metals and would like nothing better than to realize their value, and die later rather than sooner.

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  • Sat, Sep 05, 2020 - 8:28pm

    #6
    MKI

    MKI

    Status: Member

    Joined: Jan 12 2009

    Posts: 241

    Awesome interview, again

    I listened to this again, and this deep-dive interview is one of the best on the web these days. Brent Johnson is a real class act, and I've never seen him so open about how serious he thinks these times are. Gold, cash, and large cap stocks? Yikes.

    Everyone holding financial assets should listen from 15-20 min. This is some of the best interviewing I've seen on this site, and that's saying a lot. I would love to see Brent and Mike Green bounce questions back and forth on how best to hedge the next 3 years...

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  • Sun, Sep 06, 2020 - 3:48am

    #7
    dryam2000

    dryam2000

    Status: Bronze Member

    Joined: Sep 06 2009

    Posts: 416

    Past week

    The “markets” had a fair selloff for about 1.25 days at the end of this past week, particularly the NASDAQ.  What else happened?  The DXY (the USD index) spiked Friday, as one would expect with a market selloff.  What was the biggest story Friday?  When the “markets” sold off then this nearly always causes a flight to the safety of treasuries and their value goes up (yields go down),  Hence the previously held belief in the (now obsolete) 60/40 stock/bond portfolio.  Instead, on Friday the 10yr yield spiked over 15%!!!!  That is anything but typical behavior.  What else happened Friday?  The DXY spiked, but rapidly reversed course and ultimately finished near even for the day.  All of this is unusual behavior....except for those who know what’s going on.  Frankly, as great of a guy as Brent Johnson is and how knowledgeable he is, he doesn’t understand what is going on.  I like him a lot, but he’s flat wrong.  His theory fails anytime there is a stress test in the markets.  He’s missing the negative feedback loops that fully negates his theory.  I write this with 100% altruistic intentions as I don’t others to be misled.  I do not believe the rest of the world will *ever* tolerate an appreciable spike in the DXY again.  Moreover, I vehemently disagree with the sentiments towards large cap stocks.  My expectation is for the “markets” going forward is that the (DOW + S&P + NASDAQ) / (gold + silver) is going down substantially in the coming months.   The details of the variables involved can not be determined because they depend on Fed actions combined if a timely stimulus bill is inacted.  USD cash is trash plain and simple.

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  • Sun, Sep 06, 2020 - 9:11am

    MKI

    MKI

    Status: Member

    Joined: Jan 12 2009

    Posts: 241

    MKI said:

    Dryam: for those who know what’s going on. Frankly, as great of a guy as Brent Johnson is and how knowledgeable he is, he doesn’t understand what is going on. I like him a lot, but he’s flat wrong. USD cash is trash plain and simple.

    I find your comment very funny. There is arrogance, then there is just plain childlike silliness. Your comment is the latter. How do you know everything? Divinity? Brent gives cogent and clear reasons for his USD theory. Where are yours?

    Also, Brent makes it very clear in the interview that nobody knows anything for sure, and we are all just guessing in the end. But he does a great job of explaining why the USD is the cleanest shirt in the laundry pile, and why the pile will get even dirtier.

    Brent's main point is not that the USD is NOT trash compared to other currencies. And elsewhere he has itemized why this is:

    1. Double the gold reserves of any other nation. 2. Biggest air/sea military and can enforce the sea lanes. 3. Most oil production. 4. USD must strengthen as we bring home our jobs and the world buys our stuff. 5. Most food production: we feed the world. 6. Tons of coal and NG. 7. Relative political stability and law. 8. Relative low corruption.

    Remember, the USD is all about relative measurements. It's got nothing to do with the actual value, which is of course not much, being fiat.

    What Brent did say was he thinks we may have only about 2-30 years left of this USD fiat game. He thinks the endgame is on the way...but is very smart and cagey in how he articulates it. He's an impressive data driven guy.

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  • Sun, Sep 06, 2020 - 12:49pm

    #9
    dryam2000

    dryam2000

    Status: Bronze Member

    Joined: Sep 06 2009

    Posts: 416

    Not arrogance

    All I can say is let’s see how things play out.  Time will ultimately be the judge.  Simply disagreeing with someone does not equal arrogance.  FWIW, it was after I listened to two of his 2 most robust videos which made me arrive at my conclusions.  Hearing differing opinions is probably the best way for all parties to come closer to finding out what the real truth is.  I honestly could care less if I’m the one who arrives at the truth or someone else.  I’m simply happy when the truth is arrived at.  I’m a humble guy, but at the same time it’s extremely clear in my mind where things are going.  What I don’t know it’s the timeline.  I can only give my best guess at timeline of all the events.  When people can back it up it’s not arrogance.  Time will give you the answer.

    Regards

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  • Sun, Sep 06, 2020 - 4:18pm

    dryam2000

    dryam2000

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    Joined: Sep 06 2009

    Posts: 416

    I’m guessing USD / Fed game has at most 6 months in its current form

    1. Double the gold reserves of any other nation. 2. Biggest air/sea military and can enforce the sea lanes. 3. Most oil production. 4. USD must strengthen as we bring home our jobs and the world buys our stuff. 5. Most food production: we feed the world. 6. Tons of coal and NG. 7. Relative political stability and law. 8. Relative low corruption

    1. Does anyone know the true gold holdings of the US?  (Why is this one of the most guarded secrets of the country?  Weird, hmm?

    2.  The world is like a chess board.  Two rooks are superior in power than a queen, military speaking.

    3.  I was unaware the US produced the most amount of oil.  Are you sure?

    4.  No

    5.  US is good when it comes to food production

    6.  Coal & NG is good.  Does the U.S. export much of that?

    7.  The trend is not your friend

    8.  “Low corruption”.  I guess that’s how one defines corruption.  The Fed is as corrupt as it gets, and all of that filters down through the rest of the economy in so many ways.  Many times corruption flows towards corruption towards curruption, etc.  If you are a bank and purposely commit fraud in order to embezzle $billions, then you’ll get a $5million fine and warning.   If you are a minority and get caught smoking a doobie you get to go the jail..  “Low corruption” in our government, Wall Street, big banks, and big corporations is a concept I’m unfamiliar with.

     

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  • Sun, Sep 06, 2020 - 11:10pm

    #11

    timeandtide

    Status: Bronze Member

    Joined: Apr 03 2010

    Posts: 55

    What an articulate exposition of possible scenarios

    What a great interview. Highly articulate and a lot of sense but even Brent was warning that just because he has a whole load of good reasons for formulating his Milkshake Dollar theory, it may not quite pan out like that.
    I would absolutely agree with him for many of the reasons given that the dollar will surprise everyone over the next 2-3 years. It bears emphasising yet again that if the dollar goes up against other fiat currencies while at the same time there is a general deflation of stock and real estate prices then its purchasing power is rising too. That also means that debt and mortgages become killers because you are now servicing that debt with more valuable (higher purchasing power) dollars. Taking on new debt now is inherently risky if you have worries about a deflation. Better to pay off as much as you can.

    Equities markets really can fall steeply. As Mike and John point out (and emphasised by Sven's charts), there are so many technical, sentiment and historical reasons for markets to plunge from here. I do not dispute Brent's suggestion that in a rush for the safety of the US$ that US$ buyers are going to be looking for somewhere to invest those dollars. Well, if they go the equity route, they may just be buying into a plunge. When sentiment changes even the Fed's monetary actions get trampled into the dirt as we have seen on many occasions over the last 2 decades.

    John asked a very good question about interest rates. I note that Mike said they have invested heavily into very short term treasuries. Sure, they pay very little but the risk of capital loss is minimal. The risk is in higher yielding junk bonds which are priced at historically low spreads between junk and first grade debt yield. Will we ever see the bond vigilantes again?
    The Fed does not lead here - it generally follows 3 month money. The Fed, despite the current narrative is not all powerful. Brent said that: "central banks have made it abundantly clear that they are not going to raise rates but it's important to remember that rates can rise anyway." Another point he made is that the narrative is all important. For now the belief is that the Fed and the central banks have our back. That can change. The narrative is all important because it is really a reflection of the presiding belief or mood as Elliott Wavers or Robert Prechter would put it.

    Another important point Brent made is that people had to sell gold (or anything US$ based) to raise their dollar holdings back in March. Liquidity was the issue as it always is when equity markets get wobbly. Of course there is always an element of safety with gold in that it is hard to imagine it going to zero whereas stocks often do. If you are looking for safety with gold you must take delivery. Paper gold does not equate to safety.

    Gold can be sold off again for the same reason that when you are desperate you will sell whatever you have to raise US dollars. Brent also suggested holding cash. Other than the security issue, there is little point in holding cash in a bank because there is no return and despite the government guarantee of deposits (up to a certain amount), there is no possible way that guarantee could be honoured in a full scale meltdown. In such circumstances, we would most likely be looking at bail-ins. That would be a last desperate move because any restriction on the free movement of money would be absolutely devastating to the huge US economy.

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  • Tue, Sep 08, 2020 - 1:15pm

    #12

    Mark_BC

    Status: Bronze Member

    Joined: Apr 30 2010

    Posts: 398

    Mark_BC said:

    Well it looks like this selloff is gaining some legs. Maybe I'll have to eat my foot after all...

    But still, TSLA has only "crashed" back to where it was 2 weeks before its peak a week ago. So if we were 3 weeks ago, today's TSLA price would still be at all time highs. Whether it continues down, that is the question. IMO, I doubt it will go very far. The market is not going to correct back to fair value, it hasn't done that for decades. My beef with these interviews is the reluctance to admit that there are deeper hidden interventions going on. Will the market go up or down? Yes, market forces play a role but the ESF likely plays a greater role. The Fed has admitted that they will buy stocks directly and that they will give corporations money directly. Given this, how can anyone believe that the Fed doesn't have its grubby little hands in there moving the markets wherever it wants? Back earlier in the year when the market was crashing everyone was warning everyone else to stay out because any appearance of a rebound was just a dead cat bounce and that the market was going to continue down to practically zero. Well what happened after that cat bounced? It bounced back pretty high. Was that bounce based on fundamentals? So what has changed now so that the future direction of the market is based on fundamentals? If the market was ever going to crash back to true value it would have been in March.

    Me, I've been buying the dip all the way down LOL I'll let you know how that works out. I'm down 40% already!! Don't worry for me, I can lose it. But I won't because I have lots of time for these options to expire, you could fit another coronavirus crash and rebound in there.

    I appreciate all the analysis trying to predict how the market will move. But I don't think this market is ever going back to real value in the environment where the Fed is doing what it's doing, and has admitting doing last week. It won't correct until there is no more system anymore. It'll go down until sentiment has changed, then it will turn up. We may be there. Today I saw a piece warning that MSFT might drop another 10%. Maybe it's time load up!

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