Is This the Future for Stocks?

             Stocks staged a strong rally last week on a percentage basis.  There could be more upside in this rally that I view as a countertrend, but there doesn’t necessarily have to be.  I expect that there is more downside for stocks ahead.  Likely, eventually a lot more downside.

            I have often discussed the relationship between margin debt and stock performance.  Accumulating margin debt can drive stock prices higher and declining levels of margin debt can forecast a stock price decline.

            Wolf Richter recently commented on this topic.  (Source:

Increases and decreases in leverage, when large enough, drive markets up or down. The only summary data on stock-market leverage that we can get is margin debt, reported monthly by FINRA, which obtains the data from its member brokers. There is a lot more leverage in the market, but we don’t get a summary figure of it. Margin debt is our stand-in for overall stock market leverage.

Margin debt data that was released last November, for the month of October, nailed the top in the stock market, as margin debt had nailed prior tops. More on that in a moment, including my annotated long-term chart. Now we’re looking for signs of a bottom. But as of the latest release of margin debt, we’re far from any bottom.

Margin debt fell by $24 billion in September from August to $664 billion. But it is still very high, 39% above the March 2020 low. The drops in margin debt in January and February 2020 showed that there was already concern that Covid might be tearing up the markets, and some investors prepared by reducing their leverage.  At the current level, margin debt has a lot more room to fall – and the process can take years as we’ll see in a moment – before it signals a bottom in the stock market.

In the chart above, you can see that the summer rally was doomed to be just another bear-market rally because margin debt didn’t jump with it; it barely ticked up a little and then fizzled.

Leverage is a huge factor in the direction of any market. Leverage is the great accelerator on the way up, and on the way down. Big spikes in margin debt led invariably to stock market “events,” and a bottoming out of margin debt either preceded or closely followed the bottom of the sell-off.

The bottom signal occurs when margin debt drops to the lows from a few years earlier and then starts rising again.

In the long-term view of margin debt, it’s not the absolute dollar amounts that matter, but the steep spikes in margin debt before the selloffs and the declines that start with the sell-off, and bottom out at the end of the sell-off.

The long-term chart below of margin debt also shows stock market events. Margin debt will need to fall somewhere near a prior low established several years before the spike in order to give a bottom signal.

            When one considers the level of margin debt that still exists in the market, there will probably have to be more downside for stocks moving ahead.

            The “Buffet Indicator” a measure of total market capitalization divided by gross domestic product or economic output has us drawing a similar conclusion.

            In other news, raging inflation has led to the largest Social Security cost of living adjustment in more than 40 years.  In 2023, Social Security benefits will rise by 8.7%.  This from MSN (Source:

The cost-of-living adjustment, or COLA, for Social Security benefits next year will be 8.7%, or an extra $146 a month for the average retiree. It’s the biggest increase since 1981, when the COLA hit 11.2%, and reflects ongoing inflation in the US. 

A COLA of 8.7% is extremely rare and would be the highest ever received by most Social Security beneficiaries alive today,” Senior Citizens League policy analyst Mary Johnson said in an earlier statement.

In fact, the annual adjustment has risen above 7% only five times since 1975, when it was introduced. (The 2022 COLA was 5.9%.).

            The 401(k) contribution limit was also raised as it is indexed to the official, headline inflation rate as well.  The 2023 contribution limit to a 401(k) plan will be $22,500 if a plan participant is under age 50.  Participants age 50 and older can contribute $30,000.

            The same limits apply to participants in a 403(b) plan.

            If you or someone you know could benefit from our educational materials, please have them visit our website at  Our webinars, podcasts, and newsletters can be found there.

Is Housing Confirming the Recession?

        Last week, I offered practical evidence that the US economy was in recession citing the examples of FedEx pulling its 2023 earnings guidance and the ‘unretirement’ trend that is now picking up steam.

        If you are among those who are of the belief that the long-held and widely accepted definition of a recession (two consecutive quarters of economic contraction) no longer applies, the real-world facts don’t support such an idea.

        This week, I’ll present some evidence that the real estate market is on the heels of the stock market, ready to move significantly lower.

        Incidentally, year-to-date, the Standard and Poor’s 500 is down more than 22% by my measure.  I expect that stocks will ultimately go lower and the evidence suggests that real estate is now following suit.

        Wolf Richter gathered some data this past week on the current state of the real estate market (Source:

In July and through mid-August, mortgage rates fell sharply from the 6%-range in mid-June, on the widely propagated fantasy of a Fed “pivot” on rate hikes. By mid-August, the average 30-year fixed mortgage rate was down to 5%. Yesterday, they were at 6.47%. But the brief interlude of dropping mortgage rates slowed down the decline in home sales – sales declined again in August from July but at a slower rate – with Realtors in mid-August talking about the market waking back up.

But prices backed off for the second month in a row, and in a big way, amid widespread price reductions, and that also helped get some deals done.

The median price of existing single-family houses, condos, and co-ops whose sales closed in August dropped a hefty 3.5% in August from July, the largest month-to-month percentage drop since January 2016, after the 2.4% drop in the prior month, to $389,500, according to the National Association of Realtors. While there is some seasonality involved, the percentage drop was much bigger than normal in August, whittling down the year-over-year price increase to 7.7%, down from the 25% year-over-year increases last summer (data via YCharts):

In the West, price drops are further advanced, amid dismal sales. For example, in San Francisco and in Silicon Valley, median prices have plunged in recent months – now down on a year-over-year basis in San Francisco and Santa Clara County (San Jose) and up just a hair in San Mateo County, according to data from the California Association of Realtors.

Sales of existing houses, condos, and co-ops across the US dipped a smidgen from July, after the 5.9% plunge in the prior month, to a seasonally adjusted annual rate of sales of 4.80 million homes, roughly level with lockdown-June 2020, according to the National Association of Realtors in its report. This was the seventh month in a row of month-to-month declines.

Beyond the lockdown months, it was the lowest sales rate since 2014, and down by 29% from October 2020 (historic data via YCharts).

Sales of single-family houses dropped by 0.9% in August from July, and by 19% year-over-year, to a seasonally adjusted annual rate of 4.28 million houses.

Sales of condos and co-ops rose 4% from July to 520,000 seasonally adjusted annual rate, down 25% year-over-year.

Compared to August last year, sales fell by 20%, the 13th month in a row of year-over-year declines, based on the seasonally adjusted annual rate of sales.

Sales volume has been low because potential sellers are clinging to their aspirational prices of yesteryear when mortgage rates were 3%, and many would rather keep the home off the market or pull it off the market than sell for less, for as long as they can. But price reductions have now taken off, by sellers who want to sell.

Price reductions started spiking in May from record low levels last winter and spring as sales stalled, and as mortgage rates surged. In July, they reached the highest level since 2019, according to data from In August, price reductions dipped just a little as sellers might have felt that price reductions were less needed, amid the declining-mortgage-rate-Fed-pivot fantasy in July and August.

Active listings – total inventory for sale minus the properties with pending sales – rose to 779,400 homes in August, the highest since October 2020, up by 27% from a year ago, according to data from

The National Association of Realtors is clamoring for more single-family houses to be built. But homebuilders, they are having trouble selling the houses that they have already built or are building, sales have plunged, inventories have spiked to the highest since 2008, and homebuilders have started cutting prices, buying down mortgage rates, and piling on other incentives to get their inventory moving.

        If you read that carefully, you noted an amazing statistic – inventories of ‘spec’ houses are now at the highest level since 2008 which saw the worst of the Great Financial Crisis.  At that point, housing prices had already experienced a big decline.  Now, we find ourselves in a similar situation and it seems we may be at the onset of the housing price decline.

        I expect it to be severe.

        Just like the recession.

            If you or someone you know could benefit from our educational materials, please have them visit our website at  Our webinars, podcasts, and newsletters can be found there.

Inflation and Deflation Perspectives

          Despite last week’s rally in stocks, the highs of mid-November remain the market’s high point.  As I have been noting, my long-term, trend-following indicators remain negative.

          This past week, I began to read the most recent book by James Turk, a past guest on my radio program.  Mr. Turk’s book is titled, “Money and Liberty; in the Pursuit of Happiness and the Natural Theory of Money”.

          In the book, Mr. Turk offers a perspective similar to the perspective I have offered in the past regarding money and currency and the difference between the two.  Currency is used in commerce and money is a good store of value over time.  Sometimes in history, currency and money have been the same thing, other times, including the present time, they are not the same thing.

          Mr. Turk offers the example of West Texas Intermediate crude oil.  When a barrel of oil is priced in US Dollars, Euros, or the British Pound, one concludes that the price of crude oil has risen significantly since 1950.

          However, when priced in gold grams, the price of a barrel of crude oil hasn’t changed since 1950.

           Fiat currencies, over time, are devalued by central banks or governments.  That makes fiat currencies poor measuring units.

          Economic output, or gross domestic product, is measured in fiat currencies.  Devalued currencies make the reported economic output number look better than it is in reality.

          The same is true when it comes to stock values.  Stock prices reported in fiat currencies move up as the currency is devalued.  The same devalued fiat currencies that make the price of consumer goods like groceries rise also make the price of stocks increase.

          Historically speaking, this devaluation of currency is controlled and gradual initially, but then the politicians and policymakers lose control of the devaluation process and inflation gets out of control.

          Economist John Meynard Keynes, the father of the loose money policies that are being pursued worldwide today, knew that control over the devaluation process would eventually be lost with dire consequences. 

          In 1923, Keynes wrote a tract on monetary reform.  The second chapter of the tract is titled, “Inflation as a method of taxation”.  Keynes, in his writing, discusses devaluation of a currency or inflation as a method of taxation that allows a government to survive when there is no other means of survival.  This from his tract (Source:

A government can live for a long time, even the German Government of the Russian Government, by printing paper money.  That is to say by this means, secure the command over real resources – resources just as real as obtained through taxation.  The method is condemned, but its efficacy, up to a point, must be admitted.  A government can live by this means when it can live by no other.  It is the form of taxation which the public finds hardest to evade and even the weakest governments can enforce when it can enforce nothing else.” 

          Keynes indirectly states that the positive effects of currency printing diminish over time when he states that “its efficacy, up to a point, must be admitted.”

Keynes clearly understood that in the long run, the point is reached when currency devaluation doesn’t work and the adverse consequences of currency creation emerge.  One of Keynes’ most infamous quotes is “in the long run, we are all dead.”  Keynes clearly understood that eventually, this monetary policy would fail but it would be long after he and his cohorts exited the planet.

          Mr. Turk, in the aforementioned book, has this to say about Keynes’ statement.

“These words, which are frequently quoted, are among the most grossly irresponsible statements ever spoken by an economist.  Actions have consequences and planning for the next generation is an essential element of economic activity.  What is important to society and indeed our civilization is not just how we live, but what we leave for future generations.  That the planet’s environment has become so scarred is an indication of how much we have accepted the ills of progressivism, socialism, and authoritarian control by the State and moved away from capitalism, private property, and individual liberty.  The State today rarely leaves people alone.

Keynes’s comment is typical of socialists and progressives who focus on satisfying their innate yet perverse need to control others rather than where their attention should be directed, which is the consequence of their actions.  For example, they proclaim their vision that forces the world to drive electric cars so that we do not inhale the emissions from exhaust pipes, yet they are blind to the number of plants needed to generate the electricity to power all those new cars.  Decisions cannot be made on emotion.  In our world of limited resources, they must be made based on sound economics and that requires trustworthy money spent and invested at a true cost of capital.  These are requirements that only gold can provide.  Further, to achieve the best possible outcome decisions need to be unfettered by government involvement and their market interventions.

For Keynes, the long-run has arrived, and he wrote his own fitting epitaph:

‘Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually slaves of some defunct economist.  Madmen in authority, who hear voices in the air are distilling their frenzy from some academic scribbler of a few years back.’

It’s time to bury Keynes, Keynesianism, and socialism.”

          I agree with Mr. Turk.

          But abandoning currency creation will come at a cost.  A deflationary period of time will materialize.  Continuing with the Keynesian policies of currency creation will not avoid the deflationary period, it will only make the eventual deflationary period worse.

          The choices are grim; an ugly deflationary period, or an uglier deflationary period.  The longer currency creation continues, the more severe the resulting deflationary period will be.  Keynes touched on this in his 1923 tract:

“In the first place, deflation is not desirable because it effects, what is always harmful, a change in the existing Standard of Value, and redistributes wealth in a manner injurious, at the same time to business and social stability.  Deflation, as we have already seen, involves a transference of wealth from the rest of the community to the rentier class and to all holders of titles to money; just as inflation involves the opposite.”

“But, whilst the oppression of the taxpayer for the enrichment of the rentier is the chief, lasting result, there is another more violent disturbance during the period of transition.  The policy of gradually raising the value of a country’s money to (say) 100% above its present value in terms of goods, amounts to giving notice to every merchant and every manufacturer, that for some time to come his stock and his raw materials will steadily depreciate on his hands and to everyone who finances his business with borrowed money that he will, sooner or later, lose 100% on his liabilities.  Modern business, being carried on largely with borrowed money, must necessarily be brought to a standstill by such a process.”

          If you’re not familiar with the term ‘rentier’ class, it refers to someone who relies on a pension, rents, or other fixed-income sources.

          These people benefit from a currency that buys more over time.

          On the other hand, borrowers benefit from a currency that buys less over time.  Mortgage holders, business owners with debt, and the government all benefit from a currency that is being devalued.  In this scenario, dollars borrowed, buy more than dollars that are used to pay back the debt.

          When Keynes fails to acknowledge in his 1923 tract is constant money.

          Gold is constant money.

          When we go back and revisit the example of West Texas Intermediate crude oil that Mr. Turk used in his book, we find that the barrel of crude oil that sold for $2.57 in 1950 now costs more than $70 to purchase when using US Dollars in the transaction.

          That barrel of oil purchased with gold grams in 1950 and today would cost the same amount.  Gold has historically been constant money.

          At different times in history, the paper currency has been only partially backed by gold which allows for more currency creation and is inflationary.

          Today, there are zero currencies in the world with any level of gold backing.  Currency creation worldwide has been expanding and consumer price inflation is now manifesting itself in earnest.

          In response, many world central banks are raising interest rates to attempt to suppress inflation.  Wolf Richter (Source:  reported last week that the central banks of Czechoslovakia, Russia, England, Norway, the European Central Bank, Mexico, Chile, Hungary, Pakistan, Armenia, Peru, Poland, Brazil, Korea, New Zealand, South Africa, Iceland, and Japan have all increased interest rates.

          The Fed has kept interest rates at zero; look for more inflation before we see deflation. 

          As for Keynes, he was right about being dead in the long run.  Keynes passed away in 1946.

If you or someone you know could benefit from our educational materials, please have them visit our website at  Our webinars, podcasts, and newsletters can be found there.

Dollar Devaluation and a Developing Depression

Stocks and metals both rallied last week; silver was up more than 15%.

When discussing the performance of markets, it’s important to remember that market performance is measured in US Dollars.  As US Dollars are devalued, markets move nominally higher.  Measured in real terms, adjusted for the true inflation rate, markets may not be moving much or may actually be declining.

Let’s look at an example to make the point.

To examine a scenario that is realistic, we need to use an inflation rate that is not the official inflation rate, or the Consumer Price Index.  As we’ve considered previously, the CPI measure of inflation is heavily manipulated and does not reflect the real-world price experience of an average American.

The Chapwood Index measures inflation without the manipulative maneuvers that take place in the calculation of the Consumer Price Index.  The Chapwood Index measures the cost of a basket of goods and services in a metropolitan area in one year and then compares it to the cost of that same basket of goods and services one year later.

Using the Chapwood Index method of measuring inflation, the average inflation rate over the past 5 years ranges from 9% to 13% depending on which part of the country one lives in.

Five years ago, the Dow stood at about 17,800.  It has now reached the 27,400 level.  If one grows the Dow for five years beginning with a value of 17,800 at a real inflation rate of 10%, the Dow would stand at approximately 28,700 today due to the devaluation of the US Dollar. 

There’s a good argument to be made that stocks are higher only due to currency devaluation.

This currency devaluation has been taking place for a long time; however, recently it’s accelerated radically. 

If one goes back to 1933 when the law was changed to make it illegal for US citizens to own gold, one would find that the price of gold per ounce stood at $20.67.

Today, gold is selling for $2043 per ounce.  A little, simple math concludes that the dollar has been devalued versus gold by about 99%.  There was a time this past week that the price of gold exceeded $2,067 per ounce, a level exactly 100 times higher than in 1933!

Here is a perspective on this from Jan Niewenhuijs (emphasis added) (Source:

A world reserve currency is supposed to be superior in storing value, but through boundless money printing, the U.S. dollar hasn’t been able to compete with gold by a long shot. In 1932 the gold price was $20.67 dollars per troy ounce, today it crossed $2,067 dollars. 

That’s a 99% decline in the value of the dollar against gold. Other reserve currencies such as the British pound and Japanese yen have done even worse. The yen has lost 99.98% of its value against gold in 100 years. 

Gold doesn’t yield if you don’t lend it, but it’s the only globally accepted financial asset without counterparty risk. Because of its immutable properties, gold sustained its role as the sun in our monetary cosmos after the gold standard was abandoned in 1971. Central banks around the world kept holding on to their gold, despite its price reaching all-time highs such as now. This is due to Gresham’s law, which states “bad money drives out good.” If the price of gold rises central banks are more inclined to hoard gold (good money) and spend the currency that declines in value (bad money).

          Presently, we are witnessing Gresham’s law in action as I report in the August “You May Not Know Report” newsletter.  Central banks are adding to their gold holdings to the tune of more than 35 tons per month; the equivalent of more than 13 years of mining production at present production rates.

          That’s telling.

          If you’ve been to the grocery store recently, you’ve witnessed food inflation first-hand.  While some of this food price inflation can be blamed on supply chain interruptions, it is my view that is only partially to blame.  The primary cause of food price inflation, in my view, is Fed monetary policies.

          “The Washington Post” reported (Source: (Emphasis added):

 Last week, Federal Reserve Chair Jerome H. Powell said consumer prices have been kept in check due to weak demand, especially in sectors such as travel and hospitality that have been most affected by the pandemic. But food prices are the exception.

“For some goods, including food, supply constraints have led to notably higher prices, adding to the burden for those struggling with lost income,” Powell noted.

Indeed, nearly every category of food become more expensive at some point since February, according to data released Friday by the Bureau of Economic Analysis. Beef and veal prices saw the steepest spike (20.2 percent), followed by eggs (10.4 percent), poultry (8.6 percent), and pork (8.5 percent).

Compared with this time last year, prices for beef and veal are up 25.1 percent. Eggs are up 12.1 percent, and pork is up 11.8 percent from a year earlier, according to seasonally adjusted BEA data.

          Of course, it’s not surprising that the Fed Chair blamed supply constraints rather than monetary policy.

          I fully expect this inflation trend to continue.  The Fed has no choice.  The reported economic data indicates a full-blown depression. This from Michael Snyder (emphasis added)(Source:

On Thursday, we got yet another sign that this downturn is here for the long haul.  According to the Labor Department, approximately 1.2 million Americans filed new claims for unemployment benefits last week…

Four months after the COVID-19 pandemic largely shut down the economy and left millions of Americans out of work, employers continue to lay off workers at a historic pace.

About 1.2 million people last week filed initial applications for unemployment insurance – a rough measure of layoffs – the Labor Department said Thursday, down substantially from 1.4 million the previous week and the lowest level since March.

Initially, I thought that this was good news.

1.2 million is still a catastrophic number, but at least it appeared to be an improvement over last week’s level of 1.4 million.

Unfortunately, there is more to the story.

As Wolf Richter has pointed out, when you look at the unadjusted numbers and you include all state and federal programs, the number of continuing unemployment claims increased by a whopping 1.3 million last week…

The total number of people who continued to claim unemployment insurance under all state and federal unemployment programs jumped by 1.3 million from the prior week to 32.12 million (not seasonally adjusted), the Department of Labor reported this morning. It was the second-highest ever.

That would seem to indicate that unemployment is dramatically surging, and that is really bad news for an economy that is already deeply suffering.

Overall, more than 55 million Americans have now filed initial claims for unemployment benefits over the past 20 weeks.  That is a number that should be almost theoretically impossible, but this is actually happening.

Prior to this year, the all-time record for new unemployment claims in a single week was just 695,000, and now we have been above a million for 20 consecutive weeks.

Up until recently, a weekly $600 unemployment supplement from the federal government had been helping tens of millions of unemployed Americans pay their bills, but now that supplement has expired, and Congress has not yet agreed to another one.

The response to this souring economic news is likely to be more money creation which will only exacerbate the problem.  While gold and silver markets are surging here and a pullback is probably likely, if your time frame is long term, going tangible with a greater portion of your assets probably makes sense.

I have been offering this perspective and advice for a long time and it’s paid off well for our clients and readers who have followed it.

While a pullback in metals prices is likely in our view but not inevitable, continuing to add to metals holdings is likely still advisable for many investors.