Market Warnings, Oil Break Out, More Inflation, Bitcoin Breakdown soon
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I have been warning the last few months that markets were in bubble mode with valuations not seen since the 1999/2000 tech, dotcom bubble. My market predictions last year were a good first half and not so much in the last half. It did look like markets were rolling over in July but went to new highs late September into October. The strength of the election rally and Trump bump was surprising but most likely be the bubble peak. It was mostly excess election stimulus from Biden that some call sugar money. Speculation was rampant and it was easily witnessed with Bitcoin and Crypto frenzy, where all the turkeys were flying, like 'Fartcoin'. Bullish teaser Crypto emails are running rampant.
There was no Santa Claus rally as I predicted and so far the January effect is looking bearish. It goes along the lines as the first week of January goes so goes the month and a negative January often predicts a bad year. With today's action it looks like the first week and the first 5 trading days are down, unless we see a big bounce back in markets later today.
Many studies indicate the January effect is no big deal anymore, but I think it's importance is relative to market setup at the time. There is a lot of new money and optimism in January that often moves the market up and it is important that we are coming off a strong year with frothy bubble conditions.
The S&P 500 is falling down through near term support and a close below 5,800 in coming days would be very bearish.
With today's strong job numbers, excess government spending and rising interest rates holding their nose up to the Fed, it looks to me the soft landing is toast and Goldilocks will be eaten by the bears.
Job Numbers Surprise
The US economy added 256,000 jobs in December, more than the forecast of 164,000. Not good for markets as this strong number probably means higher interest rates. I showed the yield on the 10 year treasury chart yesterday and it has jumped higher this morning to 4.76% making new one year highs.
Health care added 46,000 jobs and Retail trade added 43,000 and as has been the norm, Government jobs increased 33,000 with an average of 37,000 jobs per month in 2024.
November numbers were revised down 15,000 to 212,000 so not that much and no jobs were added with the birth death rate model, in fact that number was -52,000.
It's hard to argue this is not a strong report and maybe it is a result of all the sugar money the Biden administration has been spending in recent months. Perhaps the weakness or down trend is ending?
That said a lot of changes are coming under Trump and for one I doubt we continue to see big hiring by Trump. The Biden spending spree will probably slow too. Tariffs could slow the economy and increase inflation.
Oil Breaks Out
I predicted oil would break upward from a wedge pattern I highlighted in December. We now have a very bullish higher high, next resistance is around $80. A break above that would signal a new bull market and a +23% increase from last September's election driven bottom.
How could we have a bull market? I speculated oil prices were being held down ahead of the election. That theory is looking likely now. The Biden Administration is going to impose tougher oil sanctions on Russia and Iran, ahead of Trump's inauguration. Another farewell gift to Trump as Biden is doing everything possible to thwart Trump's plans and hurt him. It is crazy but that is the current political era. Don't forget Biden depleted the Strategic Reserves and Trump will probably try to build them back up. I have been commented for many weeks that oil stocks are at multi year lows and now it looks like we are going to have a cold winter, or more normal one.
The middle east is not looking any better and probably worst. Speculation is rampant on a large incursion by or with Iran before Trump's inauguration and Israel's military is on high alert. There are rumblings the Egypt government will fall in Syria's foot steps and that would mean huge destabilization for the region.
Markets for 2025 are not looking good and Trump is inheriting a huge mess that will soon become more obvious to the market. Most of last year, I was commenting that inflation was only down because energy prices went down but that appears to be ending.
No surprise - more inflation and as I have been predicting stagflation like the 1970s/80s here we come or have been for a while.
Trump at least not inheriting near as big a mess, Canada's next PM will get.
Things in Canada are absolutely terrible but I don't want to be a bearer of bad news all the time.
The good news about Trudeau's prorogation of parliament is that his government's legislation to raise capital gains tax did not get final approval. The changes in the April budget would raise the portion of capital gains on which companies pay tax to two-thirds from one-half. The policy would also apply to individuals with capital gains earnings above $250,000.
Those changes did not pass due to the gridlock in Parliament over Conservative demands for documents related to the government’s green technology fund scandal. Proroguing clears the parliamentary order paper, meaning bills and motions would have to be reintroduced after Parliament resumes. That process probably won't happen if the Liberals don’t survive a non-confidence vote widely expected soon after a new parliamentary session begins on March 24.
The CRA normal practice is to assume it's law as of June 2024 and collect the higher tax. The 2024 tax programs may also have the new formula but I would pay based on 50% rate. We might know more by tax time?
However unfortunate for those who sold assets the 2 months before the higher tax was to take effect and maybe they really did not want to sell?
Last January the Trudeau government said they would cut back on foreign students. A lot of them simply switched from students to refugees. Just another example of total incompetence, they can't control or do anything right.
A total of 11,630 international students applied to stay in Canada as refugees between January and August of 2024, representing an average of more than 340 applications per week, the department of immigration wrote in a report to the Senate.
The government announced in September its plan to further limit the number of international students entering Canada in 2025, reducing the number of international study permits by 10 percent.
I know you really can't cut back the number of students quickly because Universities need time to adjust but immigrants, refugees and non resident workers have to be cut back far greater than the Trudeau government is talking about. Slowing the numbers still means too large of numbers and Canada cannot handle and support the ones already here. Adding to it simply adding to the problem. Canada needs to halt all this and start deporting illegals until we can build up support infrastructure.
Bitcoin is Flirting With Danger
Since what I call a bubble top, Bitcoin has tested the 92,000 area numerous times but not fallen through YET. It is too many tests and not making a new high looks bearish to me. If Bitcoin goes back up to around $100k or falls through, say to 91k/90k area then I plan to short again with the SBIT etf. I expect a unwind of the bubble top since November.
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