Category: zerohedge

Maybe its due to the recent fears about a fresh round of toilet paper shortage (with snarled supply chains evoking memories of March 2020 when toilet paper became a precious commodity for a few months) which led to TP stockpiling earlier in the year with demand sliding in subsequent weeks, or simply due to rising prices for all consumer products including toilet paper, but whatever the reason, earlier today Kimberly-Clark shares were hammered after the consumer products giant reported a steep sales declines, signaling what to some is the end of a boon triggered by the pandemic. The company, which earlier this month said it would high prices on many of its core products, also cut its annual forecast as companies are reminded that higher prices lead to lower demand.

Specifically, the company now expects organic sales for this fiscal year to be flat to a gain of 1%, well below its previous projection for an increase of as much as 2%. The company’s full year adjusted EPS guidance was also cut to $7.30-$7.55, lower than an earlier forecast of as much as $8.

So what happened? Well, as the title suggests, with organic sales down 8% last quarter, almost doubling the decline projected by analysts, the company was hard-hit by decelerating sales of toilet paper and a lagging professional business. Specifically, the company’s consumer tissue unit (i.e., toilet paper) saw a 12% decline, while operating profit fell by 26%. In North America, the company’s biggest market, sales of tissue dropped 14%.

To be sure, KMB – and many of its thriving peers – finds itself in a strange place: after a year of chasing demand, the company is suddenly grappling with higher manufacturing costs… and a plunge in demand for its products. Earlier this month, the company said it was raising prices by mid-to-high single digits on its Scott tissue business and diapers. The move may have been premature.

Meanwhile, as Bloomberg notes, Kimberly-Clark’s guidance – predicated on successfully passing through higher prices – signals a tough road ahead for consumer goods companies that flourished on surging demand during the pandemic. Indeed, as at-home consumption wanes, the company expects revenue to contract amid rising commodity costs.

Authored by Mike Shedlock via MishTalk.com,

A US treasury yield curve trend change appears to be underway. The move has strong implications in a number of ways.

Headed Lower

The 30-year long bond yield for this move peaked on March 18 at 2.45%. The 10-year yield peaked on March 31 at 1.74%, barely beating 1.73% on March 19. 

US Treasury Detail 

It’s Not the News Matters

It’s not the news that matters, it’s the market’s reaction to it. 

Yields had been inching lower. Then last Thursday there was a sudden large drop in yields on the 30- 10- and 5-year treasury yields.

Q: What Happened?

A: Retail sales surged in a blowout beating all expectations.

I discussed sales in Retail Sales Surge Nearly 10% In March as the Covid-19 Recovery Strengthens

The consensus estimate was 5.6%. Instead we saw a 9.8% surge in an enormous blowout.

When I saw the retail sales numbers, I quickly looked at bonds and gold.  My expectation was that yields would head higher and gold lower. Instead the reverse happened.

Gold Daily Chart

Technically speaking, gold double bottomed over the past two months.

Then yields fell and gold rose smack in the face of the strongest retail sales beat in history. 

Email Exchange

Last Thursday, I pinged Sitka founder Brian McAuley as follows.

Brian – Note the reaction in bonds today smack in the face of massive retail sales beat.

Retail Sales, What’s Hot? What’s Not? And What About Amazon?

Look at how Covid-19 made winners and losers in 5 select categories. Three charts. 

Also some comments on disinflationary forces in play.

I asked yesterday if I could share his response. Here goes.

It seems the turn over the past few weeks may be significant. The dollar appears to have topped in late March, and now yields are falling too. 

It is too soon to say what the 10-year Treasury yield will ultimately do with the support/resistance between 1.5-1.6%. That area defined the low end of the trading range in the decade after the financial crisis, and this is the first test from below.

The rise this year slightly above resistance may just end up be a technical clear out of the shorts. We’ll see. Overall sentiment seems to regard lower yields as a near impossibility. 

Gold, however, is acting like we’ve likely seen the highest real yields, regardless of what happens at 1.5-1.6%. It looks as if the precious metals correction from the high last August may be over.

Another Exchange 

I had a different sort of exchange with a close friend who responded “Gold has been in the dumps for a year.”  

To which I replied, “Well, when do you want to buy it?”

Comments on Buying and Selling Gold

Long time readers know that I have never issued a sell recommendation on gold. Call me a gold “hodler”. 

For those unfamiliar with “hodl” it is bitcoin slang for buy and hold. I have be hodling gold since it was $300 or so. Occasionally I trade some for silver or even equities and have written about gold-to-silver swaps a couple of times.

Although I have not said “sell”, on some occasions I do step up to the plate and suggest “now is a good time to buy gold”.

This is one of those times.

And with nearly everyone looking for stronger inflation and higher bond yields please consider The Fed Wants to Stimulate Bank Lending, Charts Show the Fed Failed

For further discussion of disinflationary trends please see comments from Lacy Hunt in my post Expect Inflation to Accelerate? Here’s 8 Reasons to Expect Decelerating Inflation

Amazon reportedly has plans for dozens of new Amazon Fresh supermarkets across the country that feature automated checkout technology and will entirely transform the supermarket industry. 

The Seattle-based e-commerce giant is quietly building a national grocery chain of at least 37 stores from Philadelphia to the Sacramento suburbs, with 12 stores in operation. 

Some of the Amazon Fresh supermarkets already employ fleets of smart grocery carts called “Dash Carts,” whose sensors and cameras add up purchases as shoppers walk the aisles. While the intelligent carts make shopping seamless, Amazon could be developing even more advanced automated checkout technology. 

A Bloomberg investigation into a store being constructed in Brookfield, Connecticut, may provide clues into Amazon’s next big move in the supermarket industry to altogether remove cashiers and self-checkout stations.  

The secretive supermarket construction in Brookfield has yet to be publicly confirmed by Amazon, local government officials, and local engineering firms, as everyone remains hush-hush about the project. But some clues suggest the store will be fully automated with cameras and artificial intelligence tracking customers and adding up their purchases as they cruise aisles. 

“Shoppers enter those locations by swiping a smartphone at the entry gate. Inside, they’re tracked by cameras, software algorithms and shelf sensors—then charged for what they take when exiting through the designated gates,” Bloomberg explained.

If the Brookfield supermarket under construction is a fully automated Amazon Fresh supermarket – it would be the first of its kind in terms of scale. This suggests the company has developed breakthrough camera technology for automated checkouts. 

Tech executives with companies positioned in the camera-based technology field told Bloomberg that cashierless systems in full-sized supermarkets are about a year or two away.

On the Brookfield Public Records website, Amazon isn’t identified by name in the planning documents. One document shows an automated checkout facility is being constructed. Bloomberg said the store also “has 320 square feet of space split between two rooms for server racks and other electrical equipment, a feature that doesn’t appear in plans for some other already open Amazon Fresh stores.” 

Raymour & Flanigan Real Estate, which owns the strip mall, recently told the local newspaper News-Times that the “proposed grocery store client is extremely secretive, as a product of the company’s foundation as a technology company.” The owners said, “when this store opens, if they are able to meet the client’s deadlines, there will be about 50-60 locations open nationwide.”

Amazon has been working for years to streamline an automated checkout system that would boost profitability and scaled up to any size store.

However, the rollout of automated checkouts and cashierless stores will likely fire up labor unions who would say Amazon contributes to the rise in technological unemployment as they attempt to eliminate supermarket employees. 

Authored by Ryan McMaken via The Mises Institute,

The US state with the fastest growing covid-19 caseload is a state that has experienced some of the harshest and longest lockdowns and covid restrictions: Michigan.

As of April 20, the seven-day moving average for new covid cases in Michigan was 790 per million. This is higher than any other US state, and it is several times higher than the case rate for Michigan a year ago. It is comparable to what it was at the beginning of cold and flu seasons last fall, when Whitmer issued orders for a new round of business closures.

In other words, if Whitmer were using the same metrics she was using to justify lockdowns in the past, she absolutely would be imposing very strict lockdowns now. Frankly, the case numbers in Michigan are terrible by the standards of those who use case numbers to push more covid restrictions.

At the moment, Michigan is under a partial lockdown, with restaurant capacity at 50 percent and a plethora of rules still in place over the size of domestic dinner parties and backyard barbecues. Mask mandates are everywhere. Yet, in spite of the clear upward trend in cases, Whitmer is resisting calls from the Biden administration and the CDC to force yet another stay-at-home order on the people of Michigan. Whitmer now says that Michigan residents can be trusted to use their own common sense and good judgment:

Policy change alone won’t change the tide… We need everyone to step up and to take personal responsibility here.

This is certainly the opposite of what she was saying a year ago. Last spring, allowing people to exercise “personal responsibility” was absolutely out of the question, and “policy change” was the most important thing in the world. For Whitmer and the lockdown enthusiasts, lockdowns were synonymous with successful control of the disease, pure and simple. Personal discretion on the part of ordinary citizens was absolutely not to be tolerated.

Indeed, during much of 2020, Whitmer appeared to delight in lambasting violators of her many decrees, and lecturing Michigan taxpayers almost daily about the need to stay home and avoid all travel. To not heed her words, the narrative went, was to “kill grandma.”

So why has she changed her tune? The fact is, public attitudes about covid are rapidly changing, and Whitmer wants to stay in office. After all, this was never “about the science.” This was about governors giving the mob what it wanted. 

Public Fears Are Evaporating

There was indeed a time when probably a majority of Americans were quite frightened—or at the very least very concerned—about the potential risk of covid. After all, the media provided a daily drumbeat about hospitals that were overwhelmed, and where bodies were literally piling up.

We were assured this was “the plague of the century” and that it would be comparable to the flu epidemic of 1918–19. We were also assured that places with strict lockdowns would have far fewer deaths than places that were “reckless” enough to not force their populations into an extended period of house arrest.

What we ended up with was mob rule. Politicians could do pretty much whatever they wanted so long as it was said to be in the name of stopping the virus. Most of the public either welcomed this or quietly acquiesced. The idea of “the rule of law” went completely our the window. All that mattered was “doing something.”

It now seems hard to believe, but there was once a time when people like Anthony Fauci were claiming that stay-at-home orders would have to be in place for a year or more so that a majority of the population could be vaccinated. Until then, we were told, we should all get used to quarantine and binge-watching Netflix day after day. To many people, that seemed plausible, and many still would be willing to go along with such a scheme. But their numbers are dwindling. According to Gallup last month, the percentage of Americans who believed the disease situation was getting worse collapsed to 7 percent.

And as overall fear has receded, the belief that lockdowns save lives has taken a beating as well.

Lockdowns Save Lives? Where?

Among the more committed government officials, like Fauci, the story remains unchanged: it is gospel that lockdowns reduce covid cases and covid deaths. Yet this assumption has proven to be based on no actual evidence, and as we look around the country, we see that states with the strictest lockdowns often have some of the worst outbreaks of covid.

For example, let’s look at covid case numbers as of April 20. In Texas, the total new cases (seven-day moving average) on April 20 was 3,004. That comes out to approximately 103 per million. Now, let’s look at Michigan, where a variety of strict mask mandates and partial lockdowns continue. In Michigan, the seven-day moving average for new infections as of April 20 was nearly eight times worse than in Texas. It has also consistently been the case that many states with strict and long-lasting lockdowns—e.g., New York, New Jersey, Massachusetts—have fared the worst when it comes to covid cases and deaths. It’s easy to see this data and come away with a very plausible conclusion: lockdowns and covid deaths aren’t actually correlated very much at all.

Political Opposition Is Growing

Moreover, there is evidence that the political opposition is finally doing something. As I noted last week, more than two dozen US states now have pending legislation to rein in the powers of governors who insist on ruling by decree and forcing endless covid regulations and mandates on states’ businesses and citizens. In some cases, legislatures have overridden the vetoes of governors in their own parties. In California, a recall election against Gavin Newsom is gaining steam. Voters in Michigan are on their way to repealing the legal foundations of emergency declarations in the state. In New York, Andrew Cuomo—who once was hailed as a hero for imposing strict lockdowns—now faces calls for resignation due to sexual harassment claims. It’s true that Cuomo isn’t being assailed for the lockdowns he imposed. But it is apparently true that a declining number of New York voters are impressed with Cuomo’s performances last year in daily press conferences haranguing New Yorkers who didn’t abide by his edicts. People are moving on.

Even Gretchen Whitmer—one of the most fanatical advocates for lockdowns—can probably see the changing reality. For example, Whitmer’s own advisors are now ignoring the state’s “advice” to avoid all travel—two of her top health advisors recently traveled to Florida and Alabama for vacation. That’s not a good sign for a governor whose political career is now intimately tied up with edicts that imposed $500 fines and ninety days in jail on people who dared leave their homes for “nonessential” activities.

Of course, this doesn’t mean Whitmer can’t win in 2022 when she runs for reelection. The voters have notoriously short memories.

Several US banks have employed AI surveillance systems as a big-brother-type instrument to analyze customer preferences, monitor workers, and even detect nefarious activities near/at ATMs, according to a dozen banking and technology sources who spoke with Reuters. 

Sources said City National Bank of Florida, JPMorgan Chase & Co, and Wells Fargo & Co are conducting trials of AI surveillance systems which offers a rare view into what could soon become standard for corporate America. 

Bobby Dominguez, the chief information security officer at City National, told Reuters the bank would begin to “leverage” facial recognition technology to identify customers at teller machines and employees at branches. The trial will be conducted at 31 sites and include high-tech software that could spot people on government watch lists. 

In Ohio, JPMorgan is already conducting AI surveillance trials at a small number of branches. Wells Fargo wouldn’t discuss its use of AI technology to monitor customers and employees. 

The corporate world is quickly embracing the effectiveness and sophistication of these systems after governments such as China, the UK, Germany, Japan, and the US have used AI surveillance to track their citizens and non-nationals for years. 

“We’re never going to compromise our clients’ privacy,” Dominguez said. “We’re getting off to an early start on technology already used in other parts of the world and that is rapidly coming to the American banking network.”

As early as 2019, JPMorgan began evaluating the potential of AI surveillance systems to analyze archived footage from Chase branches in New York and Ohio. 

“Testing facial recognition to identify clients as they walk into a Chase bank, if they consented to it, has been another possibility considered to enhance their experience,” a current employee involved in the project told Reuters. 

Another source said a Midwestern credit union last year tested facial recognition for client identification at four locations before terminating the program over cost concerns. 

City National’s Dominguez said the bank’s branches use computer vision to detect suspicious activity outside.

Given the current state of AI surveillance and the speed of development, top banks are already testing these surveillance tools in various forms. Despite a potential backlash from the public, an Orwellian dystopia via AI surveillance will be fully embraced by corporate America in the coming years.

It was the virus pandemic that allowed the surveillance state to expand across the government and corporations rapidly. We’re being tracked more than ever. 

Authored by John Rubino via DollarCollapse.com,

On today’s Wall Street Journal home page, two articles appear side-by-side. One is about how a heretofore obscure, nearly-valueless cryptocurrency called dogecoin, originally created as a joke, has soared to the point of being consequential for large sections of the investing public. And it’s not unique:

Dogecoin Is a Joke, but It’s No Laughing Matter

Dogecoin isn’t alone. It is clearly part of a broader wave of excess that spread across a bunch of different speculative assets over the past year.

Last year, stocks with less in the way of fundamentals, and more reliance on telling a hard-to-disprove story about the future, had a fabulous time.

Profit provides a grounding for a stock, while story stocks can soar on the wings of the imagination for a long time before being pulled back to earth—or occasionally confirmed as true fliers—by hard business facts.

Dogecoin’s combination of get-rich-quick speculators and you-only-live-once Reddit meme traders is similar to GameStop, which was initially pushed up by a story about a new business model and then a short squeeze, before nihilistic Redditors took over.

The story stock of the last decade was electric-car maker Tesla, with the tale being that there was a gigantic untapped market for self-driving electric cars and clean power that would eventually both work and be highly profitable.

The danger is that the excess so obvious in dogecoin has spread beyond the story stocks into mainstream investments, and that when eventually the froth is blown away, the rest of the market cools suddenly. That would be a bad joke.

The second article notes that something similar is happening in the bond market:

Corporate Bond Gauge Signals Dwindling Economic Risk

A key measure of the perceived risk in low-rated corporate bonds is hovering around its lowest level in more than a decade, highlighting investors’ mounting confidence in the economic outlook.

The average extra yield, or spread, investors demand to hold speculative-grade corporate bonds over U.S. Treasurys dropped below 3 percentage points this month to as low as 2.90 percentage points for the first time since 2007, when it set a record of 2.33 percentage points, according to Bloomberg Barclays data.

Yields on low-rated corporate bonds already hit a record low of 3.89% in February. That data point is especially important for businesses, because it signals how cheaply they can borrow when they issue new bonds. Companies including Charter Communications and United Airlines Holdings have issued a total of $184.5 billion of speculative-grade bonds this year through Tuesday, the highest over that period on record, according to LCD, a unit of S&P Global Market Intelligence.

The spread relative to Treasurys, however, is arguably an even better measure of investors’ outlook for the economy, since it shows how much investors feel they need to be compensated for the risk that companies may default on their debt.

The narrow speculative-grade bond spreads indicate debt investors think that the economic environment for businesses over the next several years could be better than at any time since the 2008-2009 financial crisis—a striking development after many feared a severe, long-lasting economic downturn just last year.

So at one end of the financial asset spectrum, a crypto originally created as a joke is generating the most enthusiasm and biggest capital gains, while way over on the corporate debt part of the spectrum, junk bonds have never been more richly valued (i.e., they’ve never yielded less). Each of these asset categories – cryptos and junk – are “story stocks” of a sort, securities that are perceived to be attractive because the environment is going to be nothing short of perfect for years to come. Therefore no need to worry about risk and every incentive to roll the dice for big returns.

Note the all-important sentence from the junk bond article (bold added):

 “The average extra yield, or spread, investors demand to hold speculative-grade corporate bonds over U.S. Treasurys dropped below 3 percentage points this month to as low as 2.90 percentage points for the first time since 2007 …”

Here’s what happened to junk bond yields (and, inversely, junk bond prices) after 2007:

One last data point: I got a long-overdue haircut yesterday, and instead of the normal chitchat about our families and upcoming vacations, the stylist and I talked dogecoin, bitcoin, Robinhood, and GameStop. She (a 20-something Latina) and her husband are having a ball speculating on things they hadn’t heard of six months ago on exchanges that didn’t exist in 2019. So far they – like the “investors” in the above Wall Street Journal articles – are thoroughly enjoying their newfound wealth.

The plunge in bitcoin overnight has brought out the crypto-skeptics and their ‘told-you-so-dances’.

But, for now the plunge appears to have stopped…

Interestingly stalling at its ‘stock-to-flow’ model implied value…

Whether the ETF tail is wagging the crypto dog is unclear but after the $35 billion Grayscale Bitcoin Trust traded down to a stunning 19% discount (the share price trading 19% below that of the underlying)…

This morning has seen that discount dramatically reverse (and in the case of ETHE – the Ethereum Trust – it is now at a premium once again) suggesting whatever liquidation pressure was happening overnight is over…

The selling pressure was also notably more on the crypto side than the retail/ETF side…

So what was going on?

Echoing last weekend’s big flush, overnight saw almost $5 billion in long liquidations across all crypto exchanges…

Source: bybt

Many of those exchanges enable significant levels of leverage…

“At its core, bitcoin is still heavily driven by retail, who choose to use a lot of leverage,” said Rich Rosenblum, president of the crypto-trading firm GSR.

Which, obviously, means any downside moves (for longs) will gravely exaggerate losses

“You have potential for a series of cascading liquidations, happening back to back to back,” said Chris Zuehlke, global head of Cumberland, the crypto-trading unit of Chicago-based DRW Holdings LLC.

And that, to some extent, is what we saw overnight with multiple legs lower in bitcoin (and the knock-on impacts on altcoins).

The canary in the coalmine for this liquidiation/de-leveraging was made very clear when Crypto lender Celsius warned clients in a tweet on Friday that they should add crypto to their accounts in the event that the lender has to demand additional collateral from borrowers.

Due to market conditions, we recommend adding crypto to your Celsius account to secure your loan in case of a margin call. We will be in touch with you directly if a margin call is issued for your loan. For additional assistance: 📧loans@celsius.network https://t.co/VF3Hqb7U1r

— Celsius (@CelsiusNetwork) April 23, 2021

So, leveraged longs would have either had to add more cash to their accounts, or liquidate some or all of their positions to meet the new, higher margin requirements.

The point of all this is simple – by taking precautionary measures overnight, crypto exchanges removed and/or pulled-forward the risk of actual margin calls dragging down prices more violently.

And the fact that the relationship between the underlying cryptos and the ETFs has violently reversed from ‘liquidationary’-looking flows this morning, suggests – perhaps – that for now, the bitcoin liquidation is over.

One of these world leaders is not like the others… One of these world leaders just doesn’t belong. Can you tell which one is not like the others, by the time we finish this song?

Source

Did you guess which thing was not like the others? Did you guess which thing just doesn’t belong? If you guessed this one is not like the others, Then you’re absolutely… right!

“…mask-up… it’s your patriotic duty…”

Interestingly, President Biden also appears to be the only world leader who doesn’t have their national flag on screen…

But then again, it appears France has already surrendered…

 

Authored by Lance Roberts via RealInvestmentAdvice.com,

During a recent CNBC interview, Jeremy Siegel suggested stocks could rise another 30% before the boom ends. Just when it seems like “euphoria” can’t get much more “euphoric,” every bullish guest in the financial media attempts to “out bull” the previous.

“It isn’t until the Fed leans really hard then you have to worry. I mean, we could have the market go up 30% or 40% [this year] before it goes down that 20%. We’re not in the ninth inning here. We’re more like in the third inning of the boom.”

Such isn’t the first time someone has made these types of predictions.

In 2013, I made the same statement:

“Despite all of the recent ‘bubble talk,’ it is entirely possible that stocks could rise 30% higher from here. However, it is not because valuations are cheap. As I discussed in my recent analysis of Q3 earnings, stocks are trading near 19x trailing earnings.”

Of course, the reason at that time was more “Quantitative Easing” from the Fed. Bernanke was rapidly expanding its balance sheet as automatic spending cuts from the “Debt Ceiling” comprise started.  However, the “fiscal cliff” never occurred, and massive amounts of liquidity flowed into asset markets instead.

While Siegel makes some valid points about the coming economic expansion due to massive fiscal liquidity, there are significant differences in the technical and fundamental underpinnings.

Valuations Are Astronomical

In 2013, as noted above, valuations on stocks were around 19x trailing earnings. While certainly expensive, valuations had not yet eclipsed previous “bull market” excess of 23x earnings. As shown below, even if we assume no increase in the index price, the market will remain well above 20x earnings over the next two years.

It is worth noting that historically when the market has traded at such a deviated level from valuations, forward returns have not been good.

Furthermore, earnings are currently trading well above the long-term exponential growth trend, and expectations are earnings will surge to a new peak by EOY 2022. Given this deviation from the long-term trend, it leaves a good bit of room for disappointment.

The chart below overlays the “inflation-adjusted” S&P 500 index over the long-term valuation bands. The current excess valuation levels rival that of some of the most critical mean reversions in history. As Carl Swenlin noted recently:

“Historically, price has usually remained below the top of the normal value range (red line); however, since about 1998, it has not been uncommon for price to exceed normal overvalue levels, sometimes by a lot. The market has been mostly overvalued since 1992, and it has not been undervalued since 1984. We could say that this is the ‘new normal,’ except that it isn’t normal by GAAP (Generally Accepted Accounting Principles) standards.”

The hope, as always, is that earnings will rise to justify the over-valuation of the market. However, when earnings are rising, so are the markets. As such, the reversions always occur with prices catching down to earnings.

Speaking Of GAAP

As Carl noted, there is nothing normal with GAAP earnings. Of course, today, most companies report “operating” earnings which obfuscate profitability by excluding all the “bad stuff.” However, as discussed previously, there is a tremendous amount of manipulation in both operating and reported earnings. To wit:

“The reason companies do this is simple: stock-based compensation. Today, more than ever, corporate executives have a large percentage of their compensation tied to stock performance. A “miss” of Wall Street expectations can lead to a large penalty in the companies stock price.

In a survey conducted with corporate executives, 93% of the respondents pointed to ‘influence on stock price’ and ‘outside pressure’ as the reason for manipulating earnings figures.”

The following table shows the expectations for reported earnings growth:

• 2020 (actual) = $94.13 / share

• 2021 (estimate) = $158.97  (Increase of 68.89% over 2020)

• 2022 (estimate) = $183.76  (Increase of 95.21% over 2020)

The chart below uses these earnings estimates and assumes NO price increase for the S&P 500 through 2022. Such would reduce valuations from 43x earnings currently to roughly 23x earnings in 2022. (That valuation level remains near previous bull market peak valuations.)

As I stated above, investors always bid up prices as earnings increase. With earnings expected to double over the next two years, and if we assume Siegel is correct in his 30% advance, the picture changes. Instead of valuations declining, the increase in price keeps valuations near 30x earnings. (Note: While Siegel discussed a 30% increase over 12 months, I have spread it out over two years.)

If Siegel is correct, a 30% advance will further exacerbate already extreme technical deviations.

Technical Extremes

“This time is different” is often the phrase most heard near market peaks. The reason is that it takes time to change psychology embedded during the previous “bear market.” However, once the “fear” is displaced by “greed,” the ensuing “bull market” leads investors to take on increasing levels of risk. Unfortunately, the reality is that eventually, the price reverts to reflect underlying economic and fundamental realities.

What causes that reversion is always unknown. However, it is generally a credit-related event that leads to a rush to protect capital. As I explained in “Fully Invested Bears:”

“Such is the consequence of the Federal Reserve’s ongoing interventions. Portfolio managers must chase performance despite concerns of potential capital loss. In other words, we are all ‘fully invested bears.’ We are all quite aware this will eventually end badly. However, in the short-term, no one is willing to take the risk of being grossly underexposed to Central Bank interventions.”

With the markets significantly deviated from long-term means, the following “reversion” will likely be a reasonably brutal event. As shown below, the market is currently trading nearly 20% above its one-year moving average. Such has only occurred a few times historically and has preceded corrections and outright bear markets.

The market is also trading more than 25% above its 24-month (2-year) moving average. Such has previously only occurred a couple of times previously (1987 and 1999.)

From a technical perspective, such is simply a reflection of current market psychology. That psychology is exceptionally bullish and very lopsided in terms of equity risk allocations. With the market “priced for perfection,” such leaves investors at risk of disappointment.

Conclusion

For Jeremy Siegel, making wild predictions about markets has no consequence. If he is wrong, he makes another prediction to cover for the first. However, for you, following such a prediction can have a devastating impact on your short- and long-term financial goals.

The reality is that markets are pushing “rarified air.” It is unlikely that corporate earnings will achieve the lofty goals set out by analysts currently. It is also very probable that economic growth may be weaker than expected. Of course, these are just “concerns” of an overvalued, extended, and overly bullish market.

Sure, the current cyclical bull market could rise another 30%.

Momentum-driven markets are hard to kill in the latter stages, particularly as exuberance builds. However, they do eventually end.

Will the market likely be higher in another decade from now? Maybe. However, if interest rates or inflation rise sharply, the economy moves through a normal recessionary cycle, or if Jack Bogle is correct, things could be much more disappointing. As Seth Klarman from Baupost Capital once stated:

“Can we say when it will end? No. Can we say that it will end? Yes. And when it ends and the trend reverses, here is what we can say for sure. Few will be ready. Few will be prepared.”

We saw much of the same mainstream analysis at the peak of the markets in 1999 and again in 2007. New valuation metrics, IPO’s of negligible companies, valuation dismissals as “this time was different,” and a building exuberance were common themes. Unfortunately, the outcomes were always the same.

“History repeats itself all the time on Wall Street”  – Edwin Lefevre

Former Olympian and Reality TV star Caitlyn Jenner has just announced plans to run for California governor as Democratic Gov. Gavin Newsom faces a recall election amid widespread public resentment over his handling of the COVID-19 pandemic, which has hammered the Golden State despite Newsom’s restrictive, economy-killing measures.

In a statement shared on her twitter account, Jenner promised to fight for small business owners, lamenting that businesses across the state have been “devastated because of the over-restrictie lockdown. An entire generation of children have lost a year of education and have been prevented from going back to school, participating in activities or socializing with their friends.”

She also noted in her statement that she has been a resident of the state for nearly 50 years: “I came here because I knew that anyone, regardless of their background or station in life, could turn their dreams into reality. But for the past decade, we have seen the glimmer of the Golden State reduced by one-party rule that places politics over progress and special interests over people. Sacramento needs an honest leader with a clear vision.”

I’m in! California is worth fighting for. Visit https://t.co/a1SfOAMZQ3 to follow or donate today. #RecallNewsom pic.twitter.com/9yCck3KK4D

— Caitlyn Jenner (@Caitlyn_Jenner) April 23, 2021

In a sign that she’s serious about the campaign, her tweet included a link to a campaign website, which appears pretty barebones, aside from a pair of buttons beckoning visitors to “shop” or “donate”. Under the shop tab, Jenner is apparently hawking “featured products” like “Caitlyn for California” wine glasses and ugs.

Jenner has been outspoken in the past about her support for the Republican Party, even backing President Trump during his first presidential campaign, though she later expressed dissatisfaction with some of Trump’s policies that she said were “anti-trans”.

Her support of Trump earned her the enmity of many otherwise “tolerant” leftists, who jumped at the chance to sneer at her campaign announcement.

Your an embarrassment to the Trans community drop out

— KyrstenSinemaisaKarenDemocrat☭ 🏳️‍⚧️👊🏽👊🏾👊🏿 (@NoahBuch2019) April 23, 2021

Jenner didn’t specify whether she’s intending to run as a Republican, though Newsom has the support of much of the state’s Democratic establishment.