Note: The Trend Letter’s Martin Straith was interviewed on This Week In Money. To listen to the interview CLICK HERE. Martin’s interview starts at 41:50.

US debt to rise to~$51.5 trillion in 10 years!

There is a lot of noise in the US over the $31.4 trillion debt ceiling and how it may impact the economy. Before anyone gets to worried, it is important to note that they have raised the debt ceiling 78 times in the last 63 years, so the likelihood of it being raised again is pretty high.. What we found more fascinating, or disturbing, was the report from the US Congressional Budget Office warning that the US will add a massive $19 trillion to the national debt in the next 10 years.

“Over the long term, our projections suggest that changes in fiscal policy must be made to address the rising costs of interest and mitigate other adverse consequences of high and rising debt,” CBO Director Phillip Swagel wrote in a letter released along with the report.

The current US debt is $31.5 trillion. That works out to $94,000 per man, woman and child or $246,000 per taxpayer.

If we add another ~$20 trillion, that would result in a debt of almost $51 trillion, equalling  close to $155,000 for per citizen and over $400,000 per taxpayer.

Who  is going to buy all the government bonds?

For the decades, central banks have been the major buyers of government bonds. During Quantitative Easing the US Fed was buying $120 billion per MONTH in mortgage-backed securities & Treasury Bonds. This kept bond yields low and was a major factor in the 40-year decline in yields on government bonds. But as we can plainly see on this chart, that trend has ended as yields are now rising.

Itis not just that central banks are no longer the buyers of government bonds, itis the fact that they are now SELLERS of government bonds. Today, the US Fed is SELLING $95 billion of those bonds EVERY Month. So again, who is going to buy all these bond to pay for all the new & maturing debt?

And this problem is not just in the US or Canada, it is a global problem and one that we believe will take us into a global Sovereign Debt Crisis…meaning we will see countries defaulting on their debt. Inflation in Argentina is 98%. You can buy a 7-year bond is paying 50%. yield,  but the question is would you lend Argentina your money for 7 years HOPING they pay you 50% each year and then give you back your principal in 7 years?

Are we getting a recession or not?

Many mainstream analysts are now suggesting that a recession is no longer likely. They may be right, but we keep seeing two leading indicators, both with near-perfect records suggesting that a recession is very likely.

1. Inverted yield curve

Since 1955,  there has been only one time where the yield curve inverted without there being a recession. And oday the yield curve is the most inverted it has been in over 40 years. Also, there have been ZERO times when inflation ran above 5%, with an inverted yield curve that did NOT result in a recession. Inflation today is over 6%.

2. Also, the Conference Board’s Leading Economic Index has a remarkable history of accurately predicting recessions and it continues forecasting a recession.

Inflation story

We need to remember that the inflation problem we have is NOT from Central Bank policy. They tried for 12 years to get inflation over 2%…couldn’t do it. This inflation started to rise as a result of COVID lockdowns. After locking down the global economy, that crushed the Supply Chain…that drove up prices. Then governments handed out $trillions in direct payments.

This pushed US savings rate from 8.3% of disposable income before the pandemic, to 34% during pandemic. But now because of high inflation and no more free money, US personal savings rate has plummeted below the pre-pandemic level. The Personal Savings rate is now just 3.4% of disposable income. That wealth effect is now gone, and people are racking up credit card debt now.

Big Tech, big change

While Tech stocks were the big winners in 2021, it was a totally different story in 2022, especially in the BIG Tech names

And to really get a grasp of what a difference a year makes, Amazon went from RECORD PROFITABILTY of $34 billion thanks to those government handouts during the pandemic, to a RECORD annual LOSS of $2.7 billion after all that free money dried up.

Tech stocks continue to be very volatile. To start this year, we have seen Google rally ~25% in January, but down ~13% so far in February. Amazon was up 37% in January, then down 15% so far in February. Tesla, up a whopping 98% in January, down ~10% in February.

Stay tuned!

In his interview on This Week in Money, Martin  offered listeners some special prices for the three services Trend News provides. Use the links below to access those special prices.

All subscriptions in $US

Special Offers

Stocks rallied on Friday to finish the week strong after briefly losing the momentum of the January rally.

The Dow Jones Industrial Average added 330.93 points, or 1%, to close at 33,375.49, while the S&P 500 advanced 1.89% to 3,972.61. Both indexes snapped a three-day losing streak. Meanwhile, the Nasdaq Composite rose 2.66%, with help from Netflix and Alphabet, to end the day at 11,140.43.

The Nasdaq was also the outperformer for the week, posting a 0.55% gain and its third positive week in a row. The Dow finished the week lower by 2.70%, and the S&P posted a 0.66% loss, both breaking two-week win streaks.

All of the major averages are still in positive territory for the year.

With the S&P 500, we can see it is forming a wedge pattern and is testing the upper rail, which coincides with the 200-DMA (blue wavy line). That 4000 level is near-term resistance, with 4100 being key resistance. Near-term support sits at 3850, with key support at 3570, which was the Sept & Oct double bottom.

One thing investors should know is that typically, the bottom in the market aligns with when the Fed STOPS CUTTING rates, not STOPS RAISING them. As is clearly evident on the chart below highlighted by the green arrows, in the last few Fed rate cut cycles (2003, 2009 & 2020)  it was when the Fed finished  cutting rates that the stock market started its next bullish move. Aso clearly evident by the red arrows, when the Fed started their rate cuts, the market started to decline.

Many have assumed that the root cause of the inflation problem that we are in today was  the Russian invasion of Ukraine.  But in reality, one of the prime root causes was the amount of government stimulus that was pumped into the economy.  Governments started handing out stimulus cheques like they were candy.  As a result, US personal saving went from $1.45 trillion in late 2019 to a whopping $4.85 trillion in mid 2020. That’s an increase of $3.40 trillion or 234% in just 6 months.

All of the money handed out created new demand…too much money, chasing too few goods. As a result, inflation started to rise dramatically. By the time Russia invaded Ukraine, inflation was already ~8%.

All that increase in personal savings created a whole new group of investors. The Reddit crowd started investing the meme stocks such GameStop and AMC. That infusion of over $3.4 trillion created a ‘wealth effect’ and resulted in the S&P 500 rising over 100% in 2021.

The bond  market continues to ‘fight the Fed’ buying bonds, pushing 10-year yields down, expecting the Fed to PAUSE or even PIVOT soon on their rate increase policy.

Both the Fed and Bank of Canada have stated that they want a ‘positive real rate’, meaning they want the central bank rate HIGHER than the inflation rate. As we can see on the chart below, both Canadian and US real rates are still negative.  The mantra for 12+ years has been ‘don’t fight the Fed.’ Will fighting the Fed work this time?

Stay tuned!

Howestreet Special Offer

In case you missed it, the Trend Letter’s Martin Straith was a guest Friday on Howestreet’s ‘This Week in Money’. The interview with Martin begins at 1:00:17. In the interview Martin disucced the following topics:

• The AI ChatGPT app
• How the root cause of the inflation problem started long before the Russian invasion of Ukraine
• Why the market treat bad news as good news
• What is happening in the bond markets
• Currencies: $US, $CAD, Euro, Yen
• Outlook for gold, silver & oil
• Key technical triggers for when to buy stocks
• What will Bank of Canada do this week?
• What is the biggest obstacle for people being success investors

After the interview Martin offered listeners some Special Pricing for our three services.  We are keeping these offers open for this week. Find them at the bottom of this page.

 Trend Letter:
Since start-up in 2002 Trend Letter has provided investors with a great track record, giving exceptionally accurate information about where the markets are going, and it has explained in clear, concise language the reasons why. Using unique and comprehensive tools, Trend Letter gives investors a true edge in understanding current market conditions and shows investors how to generate and retain wealth in today’s climate of extreme market volatility.

A weekly publication covering global bonds, currencies, equities, commodities, & precious metals. Over the 20 years Trend Letter has been published, it has achieved an incredible average return of 65% on its closed trades.

Timer Digest says: “Trend Letter has been a Timer Digest top performer in our Bond and Gold categories, along with competitive performance for the intermediate-term Stock category.”

Technical Trader:
Trend Technical Trader (TTT) is a premier trading & hedging service, designed to profit in both up and down markets. Included is our proprietary Gold Technical Indicator (GTI).

TTT had another excellent year in 2020 averaging +27.3% per closed trade with an average holding time of 9.5 weeks, or +149% annualized overall.

Over the past 5 years TTT’s closed trades have averaged +40% annualized.

Trend Disruptors:
Disruptive technology trends will propel our future and the reality is that no industry will go untouched by this digital transformation. At the root of this transformation is the blurring of boundaries between the physical and virtual worlds. As digital business integrates these worlds through emerging and strategic technologies, entirely new business models are created.

Trend Disruptors is a service for investors seeking to invest in advanced, often unproven technology stocks on the cheap, with the objective to sell them when masses finally catch on. Covering Artificial Intelligence (AI), Virtual Reality (VR), Augmented Reality (AR), 5G, Quantum Computing & many more.

Trend Disruptors has realized average annualized gains of 178% over its 5  years of service.

Special Offers

Stock indices finished today’s trading session in the green. The Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 gained 0.53%, 0.59%, and 0.27%, respectively.

So far, a ‘Santa Claus‘ rally has been missing as the year begins to close.  The failure at the 50-DMA (blue wavy line) has kept short-term downward pressure on the markets.

The technology sector was the session’s laggard, as it gained 0.07%. Conversely, the energy sector was the session’s leader, with a gain of 3.21%. In addition, WTI crude oil gained as it hovers around the mid-$79 per barrel range.

Furthermore, the U.S. 10-Year Treasury yield increased to 3.75%, an increase of more than six basis points. Similarly, the Two-Year Treasury yield also increased, as it hovers around 4.33%.

The only positive is the market didn’t violate Tuesday’s lows, keeping a slight level of support intact. As we have highlighted to subscribers of the Trend Letter,  even if the Fed changes course and stops raising rates, stocks still face more pain ahead. History shows it will not  be enough to simply stop raising rates; every bear market for many decades has ended only when the Fed actively lowered rates.

We continue to suggest using  any rally to reduce risk heading into year-end.

Stay tuned!

Howestreet Special Offer

The Trend Letter’s Martin straith was a guest on Howestreet’s ‘This Week in Money’. The interview with Martin begins at 7:56.

 Trend Letter:
Since start-up in 2002 Trend Letter has provided investors with a great track record, giving exceptionally accurate information about where the markets are going, and it has explained in clear, concise language the reasons why. Using unique and comprehensive tools, Trend Letter gives investors a true edge in understanding current market conditions and shows investors how to generate and retain wealth in today’s climate of extreme market volatility.

A weekly publication covering global bonds, currencies, equities, commodities, & precious metals. Over the 20 years Trend Letter has been published, it has achieved an incredible average return of 65% on its closed trades.

Timer Digest says: “Trend Letter has been a Timer Digest top performer in our Bond and Gold categories, along with competitive performance for the intermediate-term Stock category.”

Technical Trader:
Trend Technical Trader (TTT) is a premier trading & hedging service, designed to profit in both up and down markets. Included is our proprietary Gold Technical Indicator (GTI).

TTT had another excellent year in 2020 averaging +27.3% per closed trade with an average holding time of 9.5 weeks, or +149% annualized overall.

Over the past 5 years TTT’s closed trades have averaged +40% annualized.

Trend Disruptors:
Disruptive technology trends will propel our future and the reality is that no industry will go untouched by this digital transformation. At the root of this transformation is the blurring of boundaries between the physical and virtual worlds. As digital business integrates these worlds through emerging and strategic technologies, entirely new business models are created.

Trend Disruptors is a service for investors seeking to invest in advanced, often unproven technology stocks on the cheap, with the objective to sell them when masses finally catch on. Covering Artificial Intelligence (AI), Virtual Reality (VR), Augmented Reality (AR), 5G, Quantum Computing & many more.

Trend Disruptors has realized average annualized gains of 178% over its 5  years of service.

Special Offers

What a day in the markets.  This morning, the US published its latest official inflation reading, and it came in better than Wall Street expectations for the first time since this whole inflation trend began. The market’s reaction was immediate, sending the S&P 500 up ~4% and the tech heavy Nasdaq up over 6%. And that buying frenzy continued throughout the day, with the S&P 500 closing the day up over 5.5% and the Nasdaq up 7.35%.

The logic behind this massive rally, the biggest one since coming out of the Covid crash in 2020, was that with inflation seemingly having peaked, then the Fed would start to ‘pause’ on their rate raises. Markets are always forward looking, so with today’s inflation data, the markets jumped on that lower rate theme.

So, the big question now is, have we seen the bottom of this bear market? Could be, but we doubt it. Here is a chart that we have shown our subscribers a few times over the last couple of months.  It shows the 4 phases of a bear market:

1. Stealth –  where the Smart Money enters the market
2. Awareness  – sees Large Speculators enter the market
3. Mania – this is where the retail or what we like to call the Masses buy in
4. Blow-off – Where the market starts to turn down

At the top of the mania phase, everyone wants in, even those who haven’t ever followed the stock market…FOMO – Fear Of Missing Out. The 2021 REDDIT crowd pushing up ‘meme’ stocks like GameStop and AMC was a classic example of a Mania Phase top.

The Blow-off phase is where we get investors fall into denial, hoping the market rallies back to the highs, but it just keeps going lower. Then capitulation kicks in and ultimately, we get despair at ‘the bottom.’

When we look at those phases and overlay the current S&P 500 chart, it suggests we are the Blow-Off phase.

This would tell us that any rally here would be another short-term relief rally, maybe a few weeks, even a month.

We still need to see ‘capitulation’ and ultimately ‘despair’ kick in to finally hit the bottom

So based on all that, we would suggest we are still in a bear market. Now that doesn’t mean we can’t have a solid rally through year-end, but until we hit that capitulation and despair, we are not likely to hit bottom just yet.

Here is another chart we keep showing subscribers to remind them how volatile bear markets can be. It shows how from early 2000 to late 2002 the Nasdaq had 8 significant rallies, all over 16%, but still, over that period, the Nasdaq lost 75% of its value.

So, while we could certainly see a strong rally here, be aware of how bear markets usually end in capitulation and despair.

Stay tuned!