Here’s the news of the week – and how we see it here at McAlvany Wealth Management:

It’s Up to Regulators to Stop the Chaos Now(?)

At last look on Thursday, US stocks were seen climbing to new highs in what can only be described as a low volume, low volatility “melt-up,” in which asset values are diverging from economic fundamentals at light speed. There’s no telling when or where the ascent in stocks will stop, though once a blow-off begins its lifespan can typically be counted in months, not years. For now, however, the markets are interpreting virtually all the news as bullish, or all benefit and no risk, even though reality paints a reverse image of that view. The growth (globally) has in truth been minuscule, and has been acquired through the assumption of vast amounts of debt and/or monetary easing – none of which brings happy endings.

MWM 14, 7-3 Box ScoresAs regular readers may know by now, central banks are powerless to stop the speculative machine they’ve started. They sometimes act as if they remain in control – as we saw in the case of Fed tapering, now fast becoming irrelevant. More signs of reality came this week when Yellen, in a conference with IMF officials, remarked that market instability (or bubbles) will not be tamed by the Fed vis-à-vis policy changes. Controlling excessive lending, etc., is for regulators, she went on to say. Chinese officials were also found kowtowing to the market earlier in the week through an attempt to boost lending – as if that were humanly possible – through a re-calculation of loan-to-deposit standards. And in overnight markets Wednesday, after holding on rates, the ECB promised the moon in terms of stimulus, with long-term lending programs (to benefit households) and outright asset purchases.

Abetting that mess was the US jobs report that flashed green – on the surface. The June unemployment rate dropped to 6.1% from 6.3% as non-farm payrolls registered 288,000 when 215,000 was expected, while the participation rate held steady at 61.8%. But for those paying attention, most of the jobs were service oriented (lower paying), and/or part-time. To be exact, 799,000 part-time jobs were created and 523,000 full-time jobs were lost according to the report.

Away from stocks, Treasuries were clubbed, the precious metals paced higher, and the dollar was flat. Apparently, there’s been a fair bit of short covering in the metals, alongside a healthy shift toward “net-long” positions in New York trading. At last report (for the week ending June 24th) net long positions at the NYMEX were up by 72.0%. It may not mean much to the retail public as yet, since ETF holdings of gold are relatively stagnant as of late, but it’s how bullish trends start – quietly, and beneath the fanfare that is currently stocks.

Happy 4th of July!

As a reminder, MWM will be holding a conference for clients only on July 17th and 18th. We would love to see you there. Please let us know at your convenience if you plan to attend by calling our offices at 1-866-211-8970. Thank you.

Best Regards,

David Burgess
VP Investment Management