Is This Rally Real?

The rally continues, but the underlying macro picture is dire. Were you forwarded this email? [Sign-up to Rude Awakening here.]( [The Rude Awakening] August 16, 2022 [WEBSITE]( | [UNSUBSCRIBE]( Is This Rally Real? - The SPX ended at 4,297.14 yesterday and looks strong on a weekly basis. - The VIX is down below 20, which means the market is calm on a forward-looking basis. - But the underlying macro picture is dire, and big names have exited the market altogether. Recommended Link [Strange 2022 Prophecy Rapidly Coming True]( [Click here for more...]( America’s #1 Futurist George Gilder is telling American’s to “brace yourself” for the coming $16.8 trillion revolution. This same revolution could redefine millions of jobs and radically transform the way just about every major corporation does business. It could even change the way you get paid, save and invest for retirement. And, says George, it could make you exceedingly rich... [Click Here To See Why]( Sean Ring Editor, Rude Awakening Happy Tuesday! Thank heavens it’s cooled off here in the north of Italy. I was sweating profusely in NYC and was hoping I’d get a respite back here. And while I’m enjoying the weather, I hope it doesn’t get too cold too quickly. If that happens, you can expect Pooty-Poot to demand payment upfront, in rubles, for all the energy Europe needs to survive the winter. Yikes! But what’s hot right now is the US stock market, which is now 100 points above the level I pointed to as “important.” Let’s see if this is all a mirage. Market Update First, let’s look at the chart: From a technical perspective, this is a nice rally going strong. For the moment. We’re now bumping up against the 200-day moving average (40-week MA on the chart). If the SPX gets above there, 4,550 looks to be the next level. Let’s look at the VIX next: The VIX is currently at 19.95. According to [S&P Global]( “VIX might be said to provide a crowd-sourced estimate for the degree to which the market is uncertain about the future.” This is a better definition than saying the VIX “predicts” the volatility of the SPX thirty days from now. Honestly, it doesn’t even weakly predict volatility. So the best we can say about the VIX right now is that the market is calm about the future. Is it 2021 bull market calm? No. But any VIX level below 20 suggests risk is back on. Why would that be? Does the Market Think The Inflation Story is Really Over? Last week, the CPI and PPI numbers seemed to have topped out for the time being. Here’s the PPI: Credit: [BLS]( July’s reading was 9.76% year-on-year. This was the first time the Y-o-Y PPI wasn’t in double digits. Maybe this is a cause for celebration. But we’re still not down to where we need to be yet. As for the CPI: You can see how the steep yellow line seems to have peaked. The latest number came in at 8.5% year-on-year. (Pay no mind to Brandon’s mindless claim of zero inflation.) Here are my takeaways from this: - Inflation is far from over. - Yes, we have a short-term peak. But producer and consumer prices still rose, only slower. - As the PPI is higher than the CPI, there’s room for producers to pass on more costs to consumers. The market is stunningly naive if it thinks the inflation story is over. Other US Macro Preliminary University of Michigan confidence numbers beat expectations last Friday on lower gas prices. That’s positive. But it seems no one wants to buy durable goods at the moment. Durables, also known as durable goods or consumer durables, are goods that do not need to be purchased very often and typically last for at least three years. We need to look at durable goods because buying them is a sign of strength for an economy. This isn’t a pretty picture. Recommended Link [Biden Just Signed Death Warrant On Your Freedom]( [Click here for more...]( If Biden’s Executive Order 14067 comes to pass, a former advisor to the CIA and Pentagon is predicting legal government surveillance of all US citizens; total control over your bank accounts and purchases; and indefinite Democrat control past 2024. He says Covid was a trial run for how to control a population. Dems will use their “pandemic playbook” to silence any dissent. See exactly what to do before it happens. [Click Here Now]( And another awful reading came out on Friday, with the Empire State Manufacturing Index plummeting to its second lowest monthly change ever. Credit: [NY Fed]( A quick review of [how the index is calculated]( The general business conditions index and the indexes for the other 11 indicators are calculated by adding the percentage of "increase" responses and then subtracting the percentage of "decrease" responses. If 30% of survey respondents marked "increase," 50% chose "no change," and 20% picked "decrease," then the index would show a reading of 10. Index readings are released as absolute numbers to one place after the decimal point. From the [New York Federal Reserve]( (bolds mine): Manufacturing activity declined significantly in New York State, according to the August survey. The general business conditions index plunged forty-two points to -31.3, the second largest monthly decline in the index on record, and among the lowest levels in the survey’s history. Twelve percent of respondents reported that conditions had improved over the month, and forty-four percent reported that conditions had worsened. The new orders index dropped thirty-six points to -29.6, and the shipments index plummeted nearly fifty points to -24.1, indicating a sharp decline in both orders and shipments. The unfilled orders index fell to -12.7, indicating that unfilled orders shrank for a third consecutive month. The delivery times index declined to around zero, indicating that delivery times held steady, the first month they have not lengthened in nearly two years. The inventories index fell to 6.4, signaling that inventories increased marginally. I’ll leave it to Deam Wormer, to sum up the US macro picture: China's Pain The above subhead was initially titled “Europe and China’s Pain.” But I’m so bored of Europe’s economy being in the dumpster, I’ll just concentrate on China for now. First, let’s look at China’s discount rate: The rest of the world may be tightening, but China is bucking the trend. And that’s led to their 10-year yield coming down: And that’s partly because the People’s Bank of China - China’s central bank - prints more money than the Fed does. Shocking, I know. But it’s true. You can feel a bit of schadenfreude all you like for China’s economy imploding. But it will indeed have a knock-on effect in the US. Cassandra’s 13-F Finally, Michael Burry, a money manager famously played by Christian Bale in The Big Short, has emptied his portfolio of stocks. Burry’s Scion Asset Management owns one stock. Yes, you read that right—one stock. Burry owns just over a half million shares of GEO. You can see the listing [here](. GEO is a private prison operator, in case you were wondering. These are the firms Burry sold off: Credit: [13F.info]( To be fair, these are only reported now. So he may have bought some more equities since then. And short positions aren’t listed. Neither are foreign stocks. But this isn’t a great look for the market. The last time this guy was really right, he made billions shorting mortgage-backed securities. Wrap Up Is the rally real? Sure it is. Price is the only thing that matters. But perhaps a better question is, “Is this a sustained market rally?” My answer is “no.” This late summer sucker’s rally will take many investors to the cleaners. But not you. Until tomorrow. All the best, Regards, Sean Ring Editor, Rude Awakening [ARCHIVE]( | [ABOUT]( | [CONTACT US]( Rude Awakening is committed to protecting and respecting your privacy. We do not rent or share your email address. By submitting your email address, you consent to Paradigm Press delivering daily email issues and advertisements. To end your Rude Awakening e-mail subscription and associated external offers sent from Rude Awakening, feel free to [unsubscribe](. Please read our [Privacy Statement.]( If you are you having trouble receiving your Rude Awakening subscription, you can ensure its arrival in your mailbox by [whitelisting us.]( © 2022 Paradigm Press, LLC. 808 Saint Paul Street, Baltimore MD 21202. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized financial advice. 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