Having correctly predicted that deluge of selling by Mark Zuckerberg ahead of Facebook’s dismal results, which he said was a flashing red warning sign, Dennis Gartman is back this morning with a new warning. Whereas he recently noted that the Dow may break out to 30,000 in the near future, the “commodity guru” is less sanguine today about the market’s prospects, and warns that broad market liquidity is emerging as a potential risk to stock euphoria (hardly a new warning in the time of Quantitative Tightening), while cautioning that “we are concerned about the demise of the FANGs.”
And no, there are no directional recos today.
The key excerpt from his note is below:
LIKE WILEY COYOTE AND THE REAL SOURCE OF LIQUIDITY: We are rather doctrinaire Monetarists here at TGL and because we are we do put a great deal of importance into the Fed St. Louis Adjusted Monetary Base for that is, as we’ve always said, the “stock” from which the broader “soups” of the monetary aggregates are derived. This is where the Fed’s true footprints are left behind and as the chart this page makes very, very clear, the AMB peaked in mid- April of ’15 at $4.268 trillion dollars. It was, at its last mark last week, down to $3.670 trillion, or -16.3% from its peak… a material decline.
Further, as evidenced by the chart this page, the trend line toward an increasing AMB that extends back into mid-’09 has been broken. Having held that line four times previous, the fact that it has been broken is of very real… very material… importance. The Fed had been freely and aggressively supplying reserves to the system for years, but since mid-’15 it has stopped doing so.
Further, we are again very concerned that since mid- ’09, the currency component of M1… which is incumbent in the AMB… has risen from $800 billion to nearly $1.6 trillion. Why, one might ask, are we concerned about this steady, inexorable, rise in the currency component of M1? Because cash is deflationary. Cash is lost to the banking system. Cash is not reserved for and re-lent; it is outside of the reserve banking system and this only serves to make our concerns about the decline in the AMB all that much more serious.
So, as intimated above in our discussion of the equity markets, we are concerned about the demise of the FANGs; we are concerned about the weekly “reversals” to the downside; we are concerned that the CNN Fear & Greed Index has turned down after having gotten above 60, but most of all we are concerned that the fuel for the bull market… the Fed’s expanding monetary base… is no longer expanding but has been, for the past several years, contracting.
Stocks have been rising despite the three-year contraction in the AMB, but like Wiley Coyote in the comics who always ran out and over the cliff, eventually to collapse in a heap once his forward momentum had halted, we fear the same for equities. Be careful out there… please!
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