Day 12 begins:
We were at 6,950 before the war and now we’re at 6,781 which is down 169 points and that’s only 2.4% but it was enough to knock us out of the top of our range (Weak Retrace to Top of the Range) and, so far, we’ve held the Strong Bounce line and we didn’t make this chart for the war – these have been our predictions since early last year!
Unfortunately, the Fundamental change that’s taken place since last year is WAR!!! And what is it good for? Well Oil Companies and Materials and Defense Contractors (especially the missile-making ones) but those things were already trading at record highs so, in the past week – there really haven’t been many places to hide in the market:
The Magnificent 7 is still the new gold – because where else are you going to stuff $1Tn these days – other than 7 stocks that have a combined Market Cap of $20.5Tn.
All the Gold in the World is $27.5Tn, Silver $2.7Tn and BitCoin is $1.47Tn at $70,000 each and it falls off very fast after that. So, when money doesn’t like housing and it doesn’t like War Bonds – where is it supposed to go? Where is it safe?
It isn’t safe in CASH!!! because, since Trump came back, the Federal Reserve has issued $1,000,000,000,000 brand new Dollars – increasing the global supply by 5%. This, of course, caused the VALUE of the US Dollar to fall 10% and, rather than growing the REAL Economy – ALL of those Dollars (and more) went into the market caps of those very same Magnificent 7 stocks, which are up 12.7% ($2.6Tn) over the same time-period.
THAT is the dynamic that HAS BEEN driving the markets – the money that didn’t go into Gold (which has DOUBLED in a year) has been going into stocks and the reason Gold was able to gain $13.5Tn in a year is because 50% of the World’s Gold is jewelry and 25% is held by Central Banks and 7% is in electronics (like your phone), leaving “just” 18% ($5Tn) in tradeable gold in the World and THAT is up from $2.5Tn and the rest just got dragged along higher with the tradeable gold.
And where did that $2.5Tn come from? Global GDP ($123Tn) grew by about $6Tn last year so between Gold and Bitcoin and the Mag 7 – the rest of the growth was Corporate Profits (it sure wasn’t wages!) and THAT is where all the money went.
NOW: Growth is slowing, Corporate Profits are stalling and OIL now needs more money and THAT is a MASSIVE problem because the World spent ($60 x 100M/day x 365 =) $2.2Tn ($6Bn/day) on Oil in 2025 and, at $85 ($3.1Tn), we’ll need to come up with $600Bn more and that money will have to come OUT of stocks and gold and Bitcoin – only to go up in smoke.
Meanwhile, Trump is spending $1Bn per day ($365Bn/yr) for his latest war. That’s up from $300M/day that we spent on Iraq/Afghanistan ($2Tn total) but we also spent $4Tn more on Veteran’s Care and Loan Interest so $1Bn/day is only the beginning of what Trump is costing the next generation of Americans – quite the legacy!
Still, on the whole, we can “afford” this limited conflict – even if it drags on for a year as it’s only going to draw 5-10% of the cash flow out of the things we put money into in 2025 but THEN we have to take into account that anything that prolongs the Oil shut-in around the Strait of Hormuz more than a month is going to kick oil up over $100 – and then we’re looking at ($25 x 100 x 365 =) another $1Tn at $110 and another $1Tn at $135 if it drags on 3 more months – you can see how we’ll go broke fighting this war.
So it’s OIL that’s the main variable. Trump made very sure we had no clean-energy alternatives before starting this war so we are VERY dependent on Oil and even if he goes back to allowing us to build windmills and solar farms – that’s years away from being a solution – as would be Nuclear.
Speaking of Nuclear – that’s a big factor too because if Trump is not lying and Iran has Weapons of Mass Destruction (where HAVE I heard that phrase before?) and just ONE of them get used – then add another $1Tn to the cost of Global Insurance against the next city-sized wipeout.
See, I KNEW I’d heard all this before! And what happened when we attacked Afghanistan and Iraq after Osama Bin Laden (from Saudi Arabia – eventually found in Pakistan) attacked the US? Well, that was 2001 and that “limited engagement” finally ended in 2021 (Biden was President, AFTER Trump had 4 years to end it) so it’s mostly “War On!” for us – not War Off, right?
Still, the point is that we can get used to anything. The S&P was at 1,500 in Sept of 2000 and back to 800 in Sept of 2002 and back to 1,500 in October of 2007 and back to 735 in Feb of 2009 and, since then – almost 10x higher! Well, only 3.5x higher than where we started but – from the bottom – WOW!!!
It’s that start of the war you should be worried about. It was always just about to end but it never did. Bush got re-elected as a “wartime” President and, as much as people hated him, “you don’t change horses in the middle of a war” – this is a very standard GOP strategy – so don’t act surprised when you hear it again in a few months….
We got attacked on 9/11/2001 (S&P 1,040) and the S&P was UP to 1,148 (10%) in December of 2001 (end of the same quarter) and we were flat until March and then back to 800 (down 30%) into Feb, 2002 (Pink’s “Get the Party Started” was on top of the charts) – not everyone cares what the market is doing…
Meanwhile, we SHOULD care and it is all about Oil (which is why the G7 and the IEA are having emergency meetings) but, with Trump’s help, there are no viable alternatives to 20M barrels of oil (20% of global supply) that flows through the Strait of Hormuz on a daily basis and releasing 400M barrels of reserves buys us a month – NOT a prolonged war.
Meanwhile, people are dying and people are starving and people are running out of water in the desert – these are all bad things – so we’d better get this party started!
We’ll talk more strategy in our Live Member Chat Room and in this afternoon’s Live Trading Webinar – see you there!
