Amid the ongoing war between Russia and Ukraine, the mid-term election drama in the U.S., and escalating tensions in China as a result of severe COVID lockdown policies, a number of markets experienced impressive moves in the month of November.

For example, the S&P 500 index rallied roughly 5.4 percent in November and closed the month up 13.8 percent from its mid-October low. In addition, the yield on the 10-year U.S. Treasury Note fell from 4.10 percent to 3.68 percent, with 30 basis points (0.30%) of that taking place on one day.

The catalyst for the large moves was an inflation report. After a 9.1 percent year-over-year increase in the Consumer Price Index (CPI) in June, the CPI increased “only” 7.7 percent year-over-year in October. While obviously still high, there is evidence that deflationary forces are having the desired effect. As a result, the U.S. dollar index has declined roughly 6 percent over the past four weeks.

Oil prices are well off their peak, trading around $80 a barrel compared to more than $122 a barrel in June. And many other commodities such as aluminum, lumber, steel, soybeans, and wheat, to name a few, are also down significantly since the summer. The price direction is a welcome sight.

Meanwhile, the cryptocurrency world was rattled by the bankruptcy of FTX, a company that was run by Samuel Bankman-Fried. Earlier this year FTX raised a funding round with a valuation of about $32 billion. One prominent Silicon Valley company invested $150 million and published an over-the top glowing article about FTX on its website on September 22, 2022.

Unbelievably, the article stated:

• “FTX will be the super-app. Banking will be disrupted and transformed by crypto.”
• “Crypto is money that can audit itself, no accountant or bookkeeper needed.”
• “The FTX competitive advantage? Ethical behavior.”

On November 11, 2022, FTX filed for bankruptcy. In front of a bankruptcy judge, John Ray, FTX’s new Chief Executive Officer and the person who was in charge of Enron following its bankruptcy scandal said, “Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here.”

Another attorney for FTX estimated the number of creditors to be “more than 1 million,” up from the previous estimate of 100,000, and told the judge a substantial amount of assets are either missing or stolen.

The Silicon Valley fund was forced to write down its $150 million investment to zero and issued an apology as details emerge about what appears to be massive fraud. Remarkably, Samuel BankmanFried testified in front of Congress twice in the past 12 months and was a very large donor, seemingly in an attempt to buy influence at the highest levels of government. Unfortunately, a lot of that money may have been stolen, but there is a lot we still do not know.

In his December 7, 2021 testimony in front of Congress, Samuel Bankman-Fried said, on FTX “there is complete transparency about the open interest, there is complete transparency of the positions that are held, there is a robust, consistent risk framework applied.” In contrast, it appears that up to $8 billion of FTX client assets are missing.

Click here to read the full report.

U.S. stock markets rallied to begin the fourth quarter as the S&P 500 index gained almost 8 percent in the month of October despite the fact that the yield on 10-year U.S. Treasury Notes rose to 4.10 percent from 3.83 percent at the end of September and a barrel of West Texas Intermediate crude oil rose to about $86.50 from just below $80.

Volatility remained elevated and a case can be made that the Federal Reserve may have influenced the market in a way that could backfire. On Friday October 21, 2022, an article appeared in the online version of the Wall Street Journal (not the print version) just before 9:00 am. It was significant as that Friday happened to be an option-expiration Friday where hundreds of billions of dollars-worth of options, futures, and derivatives expire.

The article quoted several members of the Fed’s Federal Open Market Committee (FOMC), which also happened to be the last piece of public information prior to the “blackout” ahead of the official FOMC meeting. The article hinted that the Fed would debate the size of future hikes, giving some hope that the so-called “pivot” away from future interest rate hikes could be coming.

As a result, stock and bond markets staged a vigorously rally.

On November 2, 2022, Federal Reserve Chairman Jerome Powell seemed to pull the proverbial rug out from markets when he said “it’s very premature to be thinking about pausing” interest rate hikes as the Fed has “some ground to cover” in its attempt to restore low, stable inflation, “and we will cover it.”

For that reason, stock and bond markets sold off hard.

Click here to read the full report.

The only thing worse than a hostile monetary policy is a Federal Reserve that does not know what it is doing. The markets are dealing with both.

As inflation hit a 40-year high in January 2022, Federal Reserve Chairman Jerome Powell said the Fed “decided to keep the target range for federal funds rate at 0 to ¼ percent.” In that same press conference Mr. Powell referred to inflation as a “high class” problem. Now, after high inflation has caused a rout in the currency, commodity, stock, and bond markets, Mr. Powell has found religion and wants everyone to know that low, stable inflation is the “bedrock” of the economy.

For well over a year, Chairman Powell has repeatedly said that the Fed is “guided by our mandate,” one of which is stable prices. As the Fed ignored inflation and did not begin to raise interest rates until the Consumer Price Index (CPI) was 7.5 percent – a 40-year high – markets are sending a message to the Powell-Fed that those type of statements are not credible.

Consequently, markets have lost confidence in the Fed and are acting accordingly.

September saw the S&P 500 index fell 9.3 percent, the yield on the 10-year U.S. Treasury Note rose 68 basis points (0.68%) to 3.83 percent (it was 2.60 percent on August 1, 2022), and a barrel of oil fell from just over $88 to roughly $79.70.

Click here to read the full report.

Following a 9.1 percent gain in the month of July, the S&P 500 index fell 5.8 percent in the last four days of August following Federal Reserve Chairman Jerome Powell’s speech at Jackson Hole, WY. For the month of August, the S&P declined 4.2 percent.

 While we have been especially critical of the Powell-led Fed previously stating that “people who speculate on a radical, untested theory that has a damaging effect on the markets and the economy should not be in charge of monetary policy,” apparently, we were not harsh enough. To be blunt, the Powell-Fed has embarrassed itself.

 The same people who ignored rising inflation and kept interest rates at zero until inflation hit nearly 8 percent are now lecturing us about the importance of low inflation. Powell, who four weeks ago said “now that [interest rates] are at neutral” – the theoretical level that is neither accommodative nor restrictive – recently did a 180-degree turn saying “another unusually large increase [in rates] could be appropriate at our next meeting.” 

After the 1008 point decline in the Dow Jones Industrial Average on August 26, 2022, the day Powell gave his speech, Minneapolis Fed President Neel Kashkari said he was “happy.”

The yield on the 10-year Treasury Note rose from 2.60 percent in early August to nearly 3.25 percent at month end. Oil, meanwhile, was trading at roughly $87 a barrel, down from the mid-$90s in July.

Click here to read the full report.

After falling more than 20 percent in the first half of the year due to a massive policy mistake by the Federal Reserve and exacerbated by questionable domestic energy policy and the Russia/Ukraine war, the S&P 500 index rallied more than 9 percent in July following months of persistent weakness.

The interest rate on 10-year U.S. Treasury Notes fell to 2.67 percent from roughly 3.50 percent in mid-June, and a barrel of oil fell almost $10 in the past four weeks

TJT Capital Group’s InVEST Risk Model ® has helped our clients participate in bull markets and protect capital from the devastation of bear markets by focusing on 5 indicators that really matter when it comes to determining the health and direction of markets.  The following is the most recent update.

Click here to read the full report.

The Federal Reserve has made an enormous mistake and the stock, bond, currency, and commodity markets are paying the price. Moreover, the Fed is the problem, and they do not know it.

In August 2020, the Fed reached a conclusion centered on the assumption that inflation was too low. The Fed then changed monetary policy based on an untested theory – flexible average inflation targeting – with a goal of increasing inflation “moderately above 2 percent.”

The Consumer Price Index (CPI) hit nearly 8 percent before that Fed actually raised interest rates – its “primary tool for adjusting monetary policy.”

As former Federal Reserve Chairman Ben Bernanke wrote, “the Federal Reserve’s objectives – its dual mandate, set by Congress – are to promote a high level of employment, and low, stable inflation” (Emphasis added). The Fed failed catastrophically in one-half of its two mandates.

In June, Fed Chair Jerome Powell told the Senate Banking Committee that the Fed needs “compelling evidence” that inflation is falling before interest rate hikes slow after ignoring “compelling evidence” that inflation was well-above its 2 percent target.

The markets have lost confidence in the Fed. As a result, the S&P 500 index lost 8.3 percent in June and has had its worst start to the year in decades.

Few markets have been spared. The yield on 10-year Treasury securities have risen from 1.52 percent at year-end to roughly 3 percent after hitting nearly 3.5 percent in mid-June. High yield (“junk”) bonds have soared to 8.88 percent from 4.35 percent at year-end. These massive rates of change suggest that the people in charge of monetary policy should no longer be making decisions.

A barrel of oil was trading around $105 at month-end from roughly $125 four weeks ago, however, oil is still up more than 40 percent year-over-year. Copper is down more than 20 percent, cotton dropped nearly 30 percent, and natural gas fell 16 percent in a matter of weeks as the global economy slowed.

Click here to read the full report.

The S&P 500 index eked out a gain of 0.22 points in May following a brutal 7-week selloff primarily due to the massive mistake by the Federal Reserve that let the inflation genie out of the bottle. As a result, the Fed has done enormous damage to its credibility and reputation, and markets reacted accordingly.

While we have written extensively about Federal Reserve mistakes in the past, the Fed compounded its mistake by increasing interest rates only 25 basis points (0.25%) in March, and continued to purchase bonds despite inflation running at a 40-year high. Moreover, less than one week following the March Federal Open Market Committee (FOMC) meeting, Fed Chairman Jerome Powell emphasized the need to raise interest rates “expeditiously,” seemingly unaware of the fact that the Fed could have done so the previous week, not to mention months earlier.

The significant gap between what the Fed said they would do and what they did has caused confidence to evaporate.

To be clear, the Russia war with Ukraine has added to price pressures including substantially higher oil and gas, wheat, and fertilizer prices. And U.S. policy regarding domestic fossil fuel production has essentially created a self-inflicted oil embargo. Nevertheless, the Consumer Price Index was 7 percent in December, before the Russia/Ukraine war, and roughly 8 percent before the Fed raised interest rates.

Click here to read the full report.

The markets were under a great deal of pressure in April as high inflation, a significant rise in interest rates, continued geopolitical turmoil between Russia and Ukraine, and a Federal Reserve with a credibility problem weighed on stocks and bonds.

The S&P 500 index fell 8.79 percent in April and the yield on the 10-year Treasury security rose from 2.32 percent to 2.89 percent as the Consumer Price Index (CPI) increased 8.5 percent year-over-year. Moreover, the high yield bond index saw interest rates rise from 5.46 percent to 6.84 percent over a four-week period. The rate of change and lack of confidence in the Fed is causing leverage to be unwound, and investor sentiment has turned decidedly more bearish.

Click here to read the full report.

The month of March saw big swings in stocks, bonds, and commodities as the Russia/Ukraine war entered its second month, inflation rose to roughly a 40-year high, and the Federal Reserve signaled a significant change forthcoming in monetary policy.

The S&P 500 fell 5.26 percent in January, 3.00 percent in February, and 4.57 percent between March 1 and March 14, 2022, before gaining nearly 11 percent over an eleven-day period to finish down 4.9 percent in the first quarter.

A barrel of West Texas Intermediate crude oil rose as high as $130 in March as President Biden announced a ban on Russian imports of oil, although technically it does not go into effect for a few more weeks. In fact, a tanker carrying 680,000 barrels of oil left Taman, Russia on March 22, 2022 for New Orleans, LA. After April 22, 2022, the U.S. will no longer allow oil imports from Russia.

Nevertheless, in an effort to reduce gasoline prices at the pump, President Biden announced a plan to release 1 million barrels of oil per day from the strategic petroleum reserve. Oil ended March near $100 a barrel.

Click here to read the full report.