I always say that people do not trade the markets; they trade their beliefs about the markets. In that same way, I’d like to point out that these updates reflect my beliefs. I find the market update information useful for my trading, so I do the work each month and am happy to share that information with my readers. However, if your beliefs are not similar to mine, then this information may not be useful to you. Thus, if you are inclined to go through some sort of intellectual exercise to prove one of my beliefs is wrong, simply remember that everyone can usually find lots of evidence to support their beliefs and refute others. I admit that these are my beliefs and that your beliefs might be different.
These monthly updates are in the first issue of Tharp’s Thoughts each month which allows us to get the closing data from the previous month. These updates cover 1) the market type (first mentioned in the April 30, 2008 edition of Tharp’s Thoughts), 2) the debt statistics for the US, 3) the five-week status on each of the major US stock market indices, 4) our four-star inflation-deflation model, and 5) tracking the US dollar. I also write a report on the strongest and weakest areas of the overall market as a separate SQN™ Report.
Part I: The Big Picture
The Big Picture for me centers on what the impact of huge government spending will be. You need to ask yourself the following:
- What will the impact of that spending be on the value of the dollar? COVID-19 and Trump produced a huge federal deficit. COVID-19 and Biden will produce a bigger deficit. Deficits to improve infrastructure are generally very good but only one trillion of Biden’s six trillion deficit is for infrastructure.
- If Biden increases taxes on the wealthy and corporations, it will probably have a significant negative impact on the economy. For example, raising capital gains to about 43% for those making over a million will probably impact about 75% of all stock market transactions. In addition, raising corporate taxes to 28% starts to make the US less competitive. Biden is trying to get all countries to raise corporate taxes to the same minimum of 15% and that’s not bad at all.
- So far, the stock market had its best 100+ days ever for a new president – which is probably good news for Biden. He’s done a great job lessening the impact of the pandemic, however, I’m not sure what the impact of his next 100 days will have on the country. A $6 trillion deficit is not sustainable.
- What is the impact of stimulus money? People get the money based upon their income, not based upon whether they need it or not. So, for those Americans who have kept their jobs through the lockdowns, the money is just an extra bonus. Many people indicated they would invest their stimulus money. Taxpayers have now received three checks (plus, for most people, their regular income) and many received more with the child tax credit payments.
- The super-rich are getting much richer and many more Americans are becoming new millionaires. What is the impact of that?
- A huge political divide has split this country and the magnitude of this rift hasn’t been as large since the 1920s – the last time there was a huge gap between the super-rich and the poor. Politicians are playing conspiracy games with misinformation and each of the two parties generally votes as a block against the other one. For example, the Republicans win if minorities, who are less likely to vote, are restricted from voting. The new bill that failed to exit the Texas legislature would have made Texas one of the most difficult states to vote in. The conservative supreme court just upheld Arizona’s strict voting rights changes.
- Democrats win when more people vote. Therefore, Democrats would love to add Washington DC as a state, but Republicans know it will add more political power for the Democrats. So, are any politicians really interested in what is good long-term for the country and population or are they thinking, “What is good for me as a politician?” The answer to that question is easy.
- Few big corporations are folding. What’s the impact of that? When the pandemic is over, those companies that survive might be great investments. Many of the most restricted have already gone up substantially.
- What is the ongoing impact of the Trump corporate tax cut? Corporations can now earn as much money trading as they can in their normal business. Will Biden undermine that? If so, how?
- What would help more, keeping corporate taxes low or building infrastructure?
- Gold and silver seem to have lost their luster while cryptos boomed in the last year. Recently and suddenly, cryptos have had a 50% crash in a very short period of time. What is the impact of that?
- About 60% of the US population has been vaccinated with at least one dose and everyone 12 and over can be vaccinated now. About 50% of the population is fully vaccinated. Now that that has happened, what will the long-term impact of COVID-19 be?
The following table shows the information that we track regularly on the US Debt Clock website.
What are the most noticeable changes in the numbers since last month? The unfunded debt is down considerably from two months ago and then up a little since last month – is that government manipulation? Notice that the number of US taxpayers in the table continues to rise despite the media emphasis on COVID-19 deaths.
I started tracking debt-related data in two more tables which indicate how severe things are getting. This first table tracks bankruptcies, foreclosures, and employment figures. Bankruptcies are getting worse, but employment is improving.
The second table tracks money supply figures, credit card debt, and the number of millionaires. We have 255,008 more millionaires in the US than we did at the beginning of the year, and they make up about 5.6% of the US population. I know some of our clients have moved into that status because of cryptocurrencies but how does the US Debt Clock website know that?
Notice that we’ve had 11 straight months in which the number of US millionaires has gone up.
Part II: The Current Stock Market Type Is Bull Quiet
I monitor the Market SQN for timeframes from 5 weekly bars to 40 weekly bars. If you look at the price chart patterns for each of those periods, you can probably tell the direction —
- 200 days – Strong Bull at the end of May, Strong Bull again,
- 100 days – Bull last month, Bull now,
- 50 days – Bull last month, Bull again,
- 25 days – Neutral last month and Bull now.
So now our measured periods range from Strong Bull for the longest period while the shorter time frames are all Bull.
Let’s take a look at the weekly bar chart below for the S&P 500. The market made about a $7 trillion recovery since the bottom and has been setting new highs again recently. It closed out June on a record high.
This is my visual definition of a bull quiet market for the last year. Slow steady upwards movement which is what the Market SQN score also reports with nearly all of the last twelve months in the bullish ranges in the chart below –
The next chart shows the volatility measurement for the last twelve months. We have been mostly in the normal range since last summer and volatility has decreased now into the quiet zone. The historic levels of volatility from early 2020 have now left the chart.
The next table shows the weekly changes for the four major stock indices for the last month and recent annual closing prices. Last year, the Dow was up 7.25%, the S&P was up 16% while the NASDAQ was up over 47%. Small caps were up 18% which was behind the NASDAQ but ahead of the other indexes.
Now, most of the major indices are up strongly for the year. The Russell 2000 is up 17% because money is now going into the smaller caps. The NASDAQ and Dow are up about 13% and the S&P is up about 14%. Hopefully, your liquid assets are up around 14% this year. If not, you are probably losing money to inflation.
Part III: Our Four-Star Inflation-Deflation Model
Since June 2020, the model has shown strong inflation in most months and if you add BTC as another component, then all months have been inflationary.
The original model assumed gold is a major hedge for inflation (and a hedge for catastrophic times) but Bitcoin may be replacing gold for that role. Think about it — would you rather have bitcoin or gold in your portfolio right now? Hedge Fund Manager, Ray Dalio, said he would rather have BTC than a government bond, but when everyone holds that opinion, then BTC is in trouble.
We added BTC as the fifth element in our model and we have listed prices going back through Dec 31, 2019. We will tally the new score with BTC and the old score without it.
Commodities have always boomed during inflation and look at what they have done in the first half of the year.
Shadowstats.com adjusts the GDP by the original inflation calculation which suggests that we have been in a recession since 2000 with just one-quarter of non-recession. GDP got much worse in 2020, but it is starting to recover nicely and it’s at about 4% officially. Shadowstats.com shows real inflation at about 13% right now based upon how inflation was calculated in 1980 — but that’s about normal. Their charts for the money supply growth show the biggest changes in history.
Part IV: Tracking the Dollar
On June 30th, the USD index closed at 92.43. That’s an 11-point drop in 15 months but in the last 12 months, it has only dropped 3 points. Our World Market Model (see the SQN Report article below) has the US dollar ETF (UUP) in yellow and it is no longer one of the worst performers in the whole database of ETFs. Now, the worst-performing ETF among all those we watch is FXY which is a Japanese Yen fund at a Market SQN score of -1.63.
For most of you reading this, the US Dollar is your base currency. Donald Trump oversaw an increase in our debt of about $8 trillion during his administration, $6 trillion of that was in his last year. Will Biden be any better? Not at the current rate. Biden’s infrastructure bill, which I think is essential at some level, will make sure of that.
Conclusion
Let’s look again at a few possible scenarios that might play out in 2021. I ranked these from most likely to the least likely.
1) BTC will take over from Gold as the primary protector from fiat currency devaluation. This is really not so hard to judge because it is already happening. Huge movements are happening in cryptos which we’ll summarize in the newsletter on June 16th. I think institutional FOMO will take hold over BTC in 2021. We’ve had a $30,000 drop from the peak, but big institutional whales are not selling now – they are buying. I think our Super Trader crypto system will give another buy signal in BTC in the next few months.
2) Altcoins have had a big crash but could still move again in 2021.
3) COVID-19 will be around for a few more years but my sense is that the impact will go down fairly quickly in 2021. I got vaccinated in early March and after a month took two driving trips and two airplane flights. COVID-19 won’t be over this year due to variants, at least a third of the US population hasn’t gotten the vaccine, and because the whole world won’t get vaccinated as fast as the US.
4) If COVID-19 is around for a few more years, then –
- BTC could still have another 300% year in 2021.
- Other cryptos such as ETH and some of the DeFi coins will take off. This is even more likely.
- More companies in industries that have been just hanging on (airlines, cruise lines, rental cars, hotel chains, and other tourism/entertainment-based industries) will go bankrupt. Many more brick-and-mortar businesses will disappear.
- The rich will get richer and the divide between the rich and poor will become even wider.
- There will be much more social unrest.
5) In the fifth and final scenario, COVID-19 vaccines prove effective, and we reach herd immunity levels later this year. World unrest and economic malaise will improve.
With all of this uncertainly and most people worldwide still being unvaccinated and needing to stay at home, this is the best time possible to get a financial education and work on yourself. We are here ready to help with books, eLearning courses, and online workshops.
Until the July 2021 Update, this is Van Tharp.