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Battle for 3000: Bulls and Bears Ready for “Dogfight”

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Battle for 3000: Bulls and Bears Ready for “Dogfight”

After climbing 33% since the late-March lows, the S&P 500 index closed at 2955 on Friday, putting the psychologically important 3000 level within reach.

In addition to the psychological importance of the 3000 level, that also happens to be where a key long-term technical indicator sits that is widely used to determine if we are in a bull or bear market.

The two most commonly used indicators are the 50-day and 200-day moving average. The 50-day is used by investors as a gauge of the short-term market trend, while the 200-day moving average indicates the long-term market trend.

“The fact that the S&P 500 is coming off a 35% rally and that this 200-day moving average lines up with a nice even 3,000 number seemingly makes this area especially important,” said Renaissance Macro Research analyst Kevin Dempter in a note on Friday. “A breakout is not likely to come easily and we expect a dogfight here around the 200-day.”

For 21-straight trading sessions, the S&P 500 index has bounced between the 50-day and 200-day moving averages. Jason Goepfert, head of SentimenTrader and founder of independent investment research firm Sundial Capital Research, stocks are “trapped between time frames.”

While bulls anticipate the S&P breaking above 3000 – and simultaneously the 200-day moving average – will signify a new bull market and push stocks to record highs, history indicates that may not be the case.

Dempter says that since 1928, there have been 29 instances where the market traded between the 50-day and 200-day moving average for at least 20 days. In 21 of those 29 instances, the S&P 500 ended up falling below the 50-day average, while only eight ended with a push above the 200-day, he noted, making for a roughly 72% probability the index will break down.

Mark Arbeter, president of Arbeter Investments, said in a note to clients last week that as we approach the key 200-day indicator, “One would think that after a big correction or bear market, and then a retaking of this key average, the bulls would go wild, the bears would capitulate, and the stock market would go into outer space.”

He points back to previous times the S&P tried to climb above the 200-day, and says it won’t be easy.

“When the S&P first cleared the 200-day in June 2009 as we were coming out of that major bear market and the financial crises, the index stalled and then pulled back about 7%, riding on the top of the declining 200-day for about a month. The index retook the 200-day in June 2010, after a swift decline, paused, and then fell to new corrective lows.

The 200-day was overtaken in August 2010, and rolled over again. After the major correction in 2011, the “500” rose back above the 200-day for 2 days and then fell 9.8%. We saw similar price action in 2015 and 2016 as the late rally over the 200-day in October 2015 failed miserably.”

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Fed Keeps Rates At Zero, Powell Says More Fiscal Support Needed

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Fed Keeps Rates At Zero, Powell Says More Fiscal Support Needed

The Federal Reserve wrapped up its last meeting before the November elections. It announced that it would keep rates at essentially zero until at least 2023. This serves as a signal that it doesn’t see inflation as an issue at all for the foreseeable future.

Fed Chairman Jerome Powell said, “We’re going to continue to monitor developments, and we’re prepared to adjust our plans as appropriate.”

“With inflation running persistently below this longer run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer-term inflation expectations remain well anchored at 2 percent. The Committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved,” the Fed’s post-meeting statement said.

Uncertainty and the Stock Market

However, the Fed’s latest projections have core inflation staying below their 2% target until 2023. This leaves many observers unsure of the Fed’s actual plan to spur the inflation they desire. This uncertainty caused the stock market to drop after the announcement.

“He noted that targeting an inflation overshoot for ‘some time’ as the statement says, means that they are not targeting a ‘sustained’ overshoot. So how long is ‘some time’ if it isn’t sustained?'” asked AB economist Eric Winograd. “That imprecision is a problem that the committee is going to have to solve to reap the full benefits of the framework shift. It’s not a coincidence that the stock market, which had been in positive territory, flipped negative after the chair’s comments.”

“He’s the great and powerful Oz. Investors got duped. They thought enhanced forward guidance meant something, but when they peeked behind the curtain they realized the Fed didn’t do anything, and the market rolled over,” said Michael Arone, chief investment strategist at State Street Global Advisors.

Jon Hill, a senior fixed-income strategist at BMO, added “This is dovish – lower rates for longer, higher equities, weaker dollar. The Fed is saying we’re not hiking in 2023, maybe in 2024 … What they’re saying is these are our goals. We expect to have just barely met them and even then, they’re not raising rates.”

Stimulus and Economic Recovery

Stepping ever-so-slightly into the political realm, Powell said that Congress should pass another stimulus package to support the economic recovery. He then identified unemployment aid, small business relief and funding for state and local governments as three key areas.

“More fiscal support is likely to be needed,” Powell said. “The details of that are for Congress, not the Fed.”

Republicans have repeatedly stated that they won’t provide additional funding to bailout poorly managed cities and states as part of any additional stimulus bills.

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Pierre Lassonde Pt. 2: Gold Could Hit $20,000 An Ounce

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Pierre Lassonde Pt. 2: Gold Could Hit $20,000 An Ounce

Yesterday we had the first part of a recent interview by Kitco News with Pierre Lassonde, who retired as chairman of the board at Franco-Nevada earlier this year.

In today’s article, we highlight Lassonde’s comments on gold and why he thinks the Dow/gold ratio could hit 1:1 parity.

Lassonde says that retail interest in the gold market is evident by the record inflow into the GLD gold ETF this year, which has already set a record.

“If you look at gold itself, just look at the gold ETF. Look at GLD. GLD is up over 900 tons this year alone. They’ve had more inflow of money in the first 9 months of this year than any year in the past 16 years. It’s been public since 2004. It’s a record inflow of money into GLD and that’s also a precursor to what’s happening in the equity sector.”

He also says that gold prices will move higher should Democratic nominee Joe Biden win the November election. Lassonde says all the money that will be printed to finance all the new spending.

“If Biden gets in and they decide to do the kind of medicine we have in Canada, the costs are just going to blow out, they are going to have to print more money, all of that is going to fuel the gold price up.”

How high the price will rise is anyone’s guess, but Lassonde says he expects that at some time in the next 5-10 years, we will see the Dow/gold ratio to reach parity at 1:1.

When asked if that means gold will climb or the Dow will fall, Lassonde says he expects a combination of the two, but mostly a slight Dow correction with a massive increase in gold prices.

“It’s hard to see the Dow going down to 10,000 or 12,000. Could it happen? Yes, but I find it very difficult. Could it go down to 20,000? Very possibly. 17,000? Yes, 15,000? Could the gold price go up to $15,000? Absolutely. That’s what I’m talking about, but I don’t think it’s tomorrow morning. I think it’s sometime in the next 5 to possibly as long as 10 years.”

Lassonde says there have been two instances of the Dow/gold ratio reaching 1:1, and both times it occurred for different reasons. This time, he thinks we get to 1:1 due to all the money printing by the Federal Reserve.

“It’s instructive to look at the past. Because twice when it’s happened, it’s happened for very different reasons. Back in 1933, the Dow lost 90% of its value between 1929 and 1933. It went from 360 to 37. The gold price went from $20 to $36. So the gold price almost doubled but the Dow itself went down 90%. In 1980, the Dow had gone down from essentially 1000 to 600 from 1966 to 1980, it came back up to 800, but the gold price as we all know, went from $35 to $800, which is 24x from the beginning. So very, very different responses to different times.”

“The ratio has been 1:1 twice in the past. It takes a 40-50 year period if you look at 1930, 1980, well we are now at 2020, so 40 years, so sometime in the next 5, 10 years I think we are going to see 1:1. But I didn’t know how we were going to get there. With COVID, I think we’ve seen the answer in a sense that if you look at our neighbor to the south, the Federal Reserve, they are printing $3 trillion, they are talking about another package in the $1 trillion to $2 trillion.”

Lassonde does caution that if we see 1:1 parity, we shouldn’t expect $15,000 or $20,000 an ounce gold to stick around for very long. He said based on history it might only be a day or two, or a few weeks at most.

“The key question here is how long is it going to be there? Don’t forget in 1980 the gold price was $800 for less than a day. If you look at the entire quarter the gold price was $675 and if you average out for the year it was less than $600. So yes, it did go to $800, but it was there literally for a day. In 1933 though it went on a little longer than that but it was certainly less than a year, I think it was probably closer to three months or something like that. So the key question is how long will that ratio be 1:1. How long are we going to see the gold price at these crazy numbers. And then what will be the inflation? What’s the dollar going to be worth? I don’t know.”

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Trumps Wants a Bigger Stimulus Check

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United States Congress has passed the stimulus relief package for the impact of coronavirus-trump stimulus check-ss-featured

The White House made renewed calls to Congress to come up with a second bigger stimulus check. This time, President Donald Trump wants Republicans to go beyond their skinny proposal and issue a bigger relief package. This includes a bigger stimulus check for Americans.  

RELATED: Is a Second Stimulus Check Still Happening?

On Wednesday, Trump urged Republicans to support a bigger COVID-19 relief bill. He tweeted: “Democrats are “heartless”. They don’t want to give STIMULUS PAYMENTS to people who desperately need the money, and whose fault it was NOT that the plague came in from China. Go for the much higher numbers, Republicans, it all comes back to the USA anyway (one way or another!).”

Stimulus Check Update

Press Secretary Kayleigh McEnany clarified the tweet during Wednesday’s press briefing. She said the president referred to the $500 billion “skinny bill” GOP Senators passed last week. Last Thursday, the Senate voted on a Republican bill on a $500 billion stimulus package. Democrats opposed it en masse, saying it did not contain enough to help everyone. The measure didn’t pass, getting only 52 votes (it needs 60 to pass). McEnany said Trump thinks that the relief amount was too little, and it “didn’t include direct payments.” The President “wants more than the $500 billion and he’s very keen to see these direct stimulus payments.”

In particular, the President looks to favor bigger stimulus checks for American households. While both parties are discussing sending a new batch of $1,200 stimulus checks, he wants a bigger amount. Trump said on Wednesday: “I’d like to see it be very high because I love the people. I want the people to get it.” The president did not say how much higher the stimulus checks should be. He did say “I like the larger amount. Some of the Republicans disagree, but I think I can convince them to go along with that.”

House Problem Solvers Caucus

Two days ago, the bipartisan House Problem Solvers Caucus proposed a compromise $1.5 trillion stimulus package. Chief of Staff Mark Meadows says that the plan was “very thoughtful.” I’m probably more optimistic in the last 72 hours than in the last 72 days,” Meadows said. He also said that if Democrat House Speaker Nancy Pelosi is willing to stay in session, a bill might pass soon. Meadows thinks the biggest obstacle remains “the amount of money that is outlined for state and local help.” 

In  a press release, the caucus states: “Having seen no progress on a new COVID-19 relief package in four months, and in recognition of Americans’ increasing suffering, the Problem Solvers Caucus (PSC) has developed a comprehensive, bipartisan framework to meet the nation’s needs for the next 6-12 months, that can pass both chambers of Congress and be signed into law by the President.” 

Several Democrats have already rejected the plan, saying the plan needs more money. 

Encouraging Signs

Top Democrats in Congress, however, are warming up to the President’s call for a bigger stimulus. House Speaker Nancy Pelosi and Senate Minority Leader Chuck Schumer said in a statement that the White House’s pronouncements were encouraging. In a joint statement, they said: “We are encouraged that after months of the Senate Republicans insisting on shortchanging the massive needs of the American people, President Trump is now calling on Republicans to ‘go for the much higher numbers’ in the next coronavirus relief package.” 

“We look forward to hearing from the President’s negotiators that they will finally meet us halfway with a bill that is equal to the massive health and economic crises gripping our nation. By the end of the week, 200,000 Americans will have died from the coronavirus. The lives and livelihoods of the American people depend on Republicans abandoning their obsession with doing as little as possible while the coronavirus rages through our nation,” they said. Pelosi also committed that the House will remain in session until Congress passes another coronavirus relief bill. 

While there is no definite timetable nor a clear agreement on the budget yet, Trump has helped advance the talks where a deal must be made. If there is a time for compromise, it has to be now. Otherwise, it will take an election for much-needed help to arrive.

Watch this as White House Chief of Staff Mark Meadows is optimistic a Covid-19 relief package is still possible:

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Do you think a stimulus package will pass soon? More importantly, do you agree with Trump that it should contain a bigger stimulus check? Share with us your thoughts on what the second stimulus package should contain. Comment below and let us know.

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