[CHART ALERT]: 3 Predictions

How will these trends resolve in September? [Morning Reckoning] August 15, 2023 [WEBSITE]( | [UNSUBSCRIBE]( [CHART ALERT]: 3 Predictions - Shifting trends still matter — even during what’s usually a low-volume, low-volatility month. - I’m going to show you three confusing, perplexing, and downright maddening charts that could be shaping up for big moves in the fall… - …and predictions on which way they might break. [Your Credit Card: Declined?]( [Click here to learn more]( Take a moment and picture this scenario: The line at the gas pump is getting longer as you insert your credit card for the second time. You decide to head in and ask the cashier what’s going on. There’s a long line inside. The woman in front of you looks frustrated. Everyone does. “There’s nothing I can do. You’re declined,” the cashier says to the man at the front of the line. It’s not just you. Everyone is declined. Something doesn’t seem right. A sinking feeling sets in as you realize something has gone terribly wrong. [Click here now for an urgent new prediction from a former advisor to the CIA and Pentagon.]( [LEARN MORE]( Baltimore, Maryland August 15, 2023 [Greg Guenthner] GREG GUENTHNER Dear Reader, School starts soon, so I’m hitting the road with the fam in a few days to spend our last precious hours of summer vacation at the beach. In just a couple weeks, the dog days of summer will give way to homework, carpools, and soccer practice. We’ll also (hopefully) enjoy a reprieve from the oppressive heat and humidity that’s currently blanketing the East Coast. But for now, we’re stuck in the summer doldrums. Back in the day, all the major market players were nowhere to be found in August. Junior traders and interns manned the turrets on Wall Street while wealthy fund managers escaped to the Hamptons for the month. The adults would return after Labor Day weekend to clean up the mess… and the real trading would begin once again. I’m not so sure this is the case anymore in the modern era of 24/7 trading. Sure, the market probably attracts fewer eyeballs in August. But it’s downright impossible to imagine any of the pros completely disconnecting from daily market updates. After all, the WiFi at the beach house is probably faster than at the office… Plus, shifting trends still matter — even during what’s usually a low-volume, low-volatility month. August has been busy this year – mainly because of the abrupt market rotation we’re witnessing right now. We’ve talked at length about some of these rotation themes into energy names for the past couple months. We also explored some energy over tech ideas in last week’s issue as the Energy Sector ETF (XLE) posted a major breakout. It’s funny how investors will get stuck on a particular market theme — even when it begins to roll over. The herd mostly ignored the quiet rallies in the energy sector in favor of explosive tech gains this summer. I get it — these were the monster trades of the first six months of the year. Many of the big, recognizable names were stair-stepping higher every single week. If you wanted to make money, you’d bet on the tech leaders and snapback growth names. The market is clearly changing. The tech sector is taking its lumps, while energy stocks are breaking out the upside. But some folks will continue to pound their heads against the wall, betting on tech as it steadily sinks lower. Tech and energy aren’t the only major trends evolving in August. In fact, we’re already beginning to see several substantial shifts from the historic first-half rally. So, what does the second half of 2023 have in store for us as Labor Day and fall trading approach? Today, I’m going to show you three confusing, perplexing, and downright maddening charts that could be shaping up for big moves in the fall. Then, I’ll offer up a quick prediction on which way they might break. Let’s get started… [[CHART] Could Inflation Hit 20%+ In 2023?]( [Click here to learn more]( Take a close look at this scary chart pictured here… What you see is the money supply in America… And as you can see, the number of dollars in circulation has exploded in the last few years. In fact, more than 80% of all dollars to ever exist have been printed since just 2020 alone! Which is why some say inflation could soon explode even higher than it is now, to 20% or more. And if you’re at or near retirement age you must take action now to protect yourself… otherwise you risk losing everything. [Simply click here now to see how to survive America’s deadly inflation crisis](. [LEARN MORE]( Can Bitcoin Bounce Back? Bitcoin is dead. No, it hasn’t crashed. But price fluctuations have completely dried up in what used to be an extremely volatile asset. Crypto has a history of late-night, holiday and weekend moves. But this is the calmest I’ve seen the price of Bitcoin in a very long time. It’s not budging at all, did absolutely nothing over the weekend, and continues to flat line in the mid $29K range. Bitcoin has remained in a consolidation range since its June rally. During that one magical week in June, Bitcoin rallied more than 20% to break above $30K. Since then, it has essentially gone nowhere aside from a couple of fake-out moves. [chart] Perhaps more importantly, Bitcoin and the tech-growth trade do not seem to be on speaking terms anymore. These assets have traded hand-in-hand for the past couple years. But Bitcoin failed to extend its rally along with tech heading into August. And it didn’t post a sharp pullback along with tech to kick off August, either. Prediction: Bitcoin gets its act together and posts another surge higher at some point during the third or fourth quarter, possibly after an ugly move lower. I don’t love this guess, but I have to give Bitcoin the benefit of the doubt because it remains locked in a longer-term uptrend. Will These Tech Stocks Lead the Market Lower? Semiconductors have proven themselves as important market leadership once again this year. Powered by NVDA and other hot names in the group, the VanEck Vectors Semiconductor ETF (SMH) has rallied as much as 60% since January. But August has not been as kind to the chips. Semis took a major hit to start the month — and the timing couldn’t be worse. After breaking above their 2021 highs, SMH has abruptly fallen back into its range, potentially flashing an ugly false breakout. [chart] Prediction: Failed moves like this can cause some serious pain as late buyers are scared out of their positions. Taking market rotation themes into consideration, I’m guessing it will take several weeks and more downside action before we see semis firm up and make another attempt at holding above 155. Is Inflation Really Over? It’s been a hot minute since investors have freaked out over inflation. Market reactions to CPI and PPI have been relatively tame this summer, signaling that most folks believe the scariest days are behind us. The Fed’s been aggressive, headline numbers are down… why worry? Well, here’s a fun chart that’s been making the rounds on social media… [chart] Was that just the first wave? Are we headed toward a 70’s style inflation rebound? As Klymochoko mentioned, this would be a nightmare scenario for the Fed — and the stock market. Prediction: We shouldn’t put too much emphasis on these historical analog charts. But I do think it’s interesting that everyone assumes the inflation monster is dead and buried while we’re seeing commodity prices beginning to wake up (ahem, oil anyone?) What do you think of these predictions? Am I on target — or just talking trash? Let me know… Best, [Greg Guenthner] Greg Guenthner Contributing Editor, Morning Reckoning feedback@dailyreckoning.com [New “WiFi Crypto” Token is Going NUTS!]( Only a handful of crypto investors know about this… But there’s a tiny, affordable device… That’s paid investors real crypto – every day, with zero work… Just for having a working WiFi connection! It sounds crazy, but it’s true… And [this 3:28 video]( explains everything. [Click here to view it NOW](. [LEARN MORE]( In Case You Missed It… Russia: 📈 Germany: 📉 Sean Ring, Editor [Sean Ring] SEAN RING Dear Reader, Boy, oh boy. This wasn’t supposed to happen. Russia was supposed to be suffering. The West was supposed to be prospering. Someone at the Office of Unintended Consequences didn’t inform Biden, Blinken, and Nuland that their strategy was asinine. And ace vassal state Germany just let them do it. Now, we’ve got tangible evidence sanctions were a strategic failure. By the end of 2022, Russia’s economy surpassed Germany’s as the largest economy in Europe. They’ve kept the news quiet. You probably didn’t hear about it. But we’ve got proof. From the World Bank, no less: Credit: [The World Bank]( To be fair, Russia’s economy is nearly half the size of Germany’s without adjusting GDP by PPP. But that’s not what most economists look at. They adjust. Let’s examine what those numbers mean, what PPP is, and why it matters. But before that, I just had a horrible flashback… Bodrum, Turkey, September 2015 I’ll never forget it as long as I live. It was boat day at Hans Hoppe‘s libertarian shindig in Bodrum. On the Sunday before the conference concludes, we go out on boats into the Mediterranean. It’s usually mid-September with gorgeous weather and cool water. My ship, colloquially known as the Bad Boys, is always stocked full of booze from around the world. It’s a great day, full of mischievous behavior and uproarious laughter. This particular year Captain America, as we call him, decided to have some fun with our friend, who we’ll call Mad King Lud. Lud is very well endowed. Lud was getting out of the water, climbing up a ladder on the side of the boat, and Captain America was right behind them. Captain America, who still serves in the US military and is one of the brightest guys I know, maintains a 15-year-old’s sense of humor. He decided to “pants” Mad King Lud. Luckily, I was nowhere near the ladder. However, I had an unobstructed view from the deck. I’ll never forget what I saw: Lud‘s pendulous tallywhacker, swinging as if it was one of the Kraken‘s tentacles, nearly knocked out Captain America’s teeth! The good Captain was hanging onto the ladder for dear life, bobbing and weaving the ginormous dong. Pam was facing me and had her back to the infamous incident. I hugged her as hard as possible so she couldn’t turn around to see what she was missing. I had gotten in the wrong queue when God handed out skinflutes. I had finally understood what it was to be a flat-chested junior high school girl whose best friend suddenly sprouted double Ds. It was humiliating. Right now, I suspect Germany feels the same way. Time To Steel-Man: PPP is Flawed Peter Thiel uses the term “steel-manning” to describe how you should argue against your opponent’s best arguments to win an argument, rather than his weakest. (It’s supposed to be the opposite of “straw-manning.”) I would guess that most people would say purchasing power parity (PPP) is highly flawed. [Mish Shedlock just published a post]( calling PPP “horrendously flawed.” I encourage you to read it, as it compares the US and Chinese economies. After reading it, you’ll have more data to decide your thoughts on PPP. So what is PPP? In plain English, every country has a different currency, inflation rates, interest rates, and prices. Purchasing power parity (PPP) tries to correct for this to make better comparisons between countries. A more formal definition of PPP: an economic theory and a method used to compare the relative value of currencies in terms of their purchasing power. The concept is based on the idea that without transportation costs and other trade barriers, identical goods should have the same price when expressed in a common currency. In other words, the exchange rate between two currencies should adjust to equalize the prices of a basket of goods and services in both countries. The theory suggests that over the long term, exchange rates between two currencies should adjust to reflect differences in inflation rates between the two countries. Suppose one country has a higher inflation rate than another. In that case, its currency should depreciate relative to the other country's currency, so the prices of goods and services become more balanced. There are two main forms of PPP: - Absolute PPP: This theory states that the exchange rate between two currencies will be in equilibrium when the purchasing power of each currency is the same for a common basket of goods. In other words, the exchange rate should reflect the relative price levels of the two countries. - Relative PPP: This theory considers changes in the inflation rates between two countries. It suggests that the change in exchange rates over time should reflect the difference in inflation rates between those countries. The purported advantages of using PPP to “equalize” the comparison of economies are: Comparing countries' Gross Domestic Product (GDP) using Purchasing Power Parity (PPP) has several purposes and advantages. But I’ll highlight the top five. - Accurate Comparison of Economic Size: GDP is a commonly used measure to assess the size of an economy. However, when comparing the GDPs of different countries using nominal exchange rates, the comparison is distorted by fluctuations in exchange rates. PPP-adjusted GDP allegedly provides a more accurate measure of the relative economic size by accounting for differences in price levels and currency values. - Global Economic Rankings: Using PPP-adjusted GDP allows for a different ranking of countries' economic sizes compared to nominal GDP rankings. Some countries with relatively low nominal GDP but lower price levels can have higher PPP-adjusted GDPs, reflecting their larger economic capacity when considering local price differences. - Cross-Country Economic Analysis: PPP-adjusted GDP facilitates cross-country economic analysis by providing a more consistent and comparable measure. Researchers, policymakers, and analysts use PPP-adjusted data to study economic trends, growth rates, and economic development across countries. - Trade and Investment Decision-making: Businesses and investors use PPP-adjusted GDP data to make informed international trade and investment decisions. It helps them understand the potential market size and consumer purchasing power in different countries. - Allocation of Resources: International organizations and aid agencies use PPP-adjusted GDP data to allocate resources and assist countries based on their economic capacity and needs. So, it’s not an altogether useless metric. You just need to know its limitations. And there are loads of them: - Quality and Availability of Data - Assumptions and Methodology - Non-Tradable Goods and Services - Subsidies and Taxes - Exchange Rate Volatility - Quality of Life and Non-Market Activities - Urban-Rural Disparities - Homogeneity Assumption - Dynamic Changes - Data Collection Challenges While PPP is indeed a flawed metric, it’s the best thing we’ve got for now. Sanctions: The Vassal Suffers According to [Politico]( Confronted by a toxic cocktail of high energy costs, worker shortages, and reams of red tape, many of Germany’s biggest companies — from giants like Volkswagen and Siemens to a host of lesser-known, smaller ones — are experiencing a rude awakening and scrambling for greener pastures in North America and Asia. Not only that, but foreigners aren’t interested in the high costs of Germany if they can find comparable expertise in cheaper places: [chart] Credit: [Politico]( Germany is now drawing comparisons to America’s Rust Belt and the UK’s Midlands. They were once thriving industrial hubs that fell because of mismanagement. Unfortunately, Germany doesn’t have a diverse economy. Its banking sector is a mess, and manufacturing counts for 27% of its economy. (The US is 11% by comparison.) Like the rest of Europe, Germany's demographics work against it. That’s why its reliance on cheap Russian energy wasn’t to be underestimated. Alas, the USG didn’t give a toss, and the German elites stupidly went along with the poor policy. Now the country, and perhaps the entirety of the EU, will pay for the mistake. Wrap Up Meanwhile, Russia is whistling Dixie, or whatever their equivalent is. Somehow, despite the barrage of sanctions, blackballing at international institutions, and seizure of its assets abroad, Russia emerges the winner. Now, by one measure, it’s Europe’s biggest economy. All the best, [Sean Ring] Sean Ring Contributing Editor, The Morning Reckoning feedback@dailyreckoning.com Twitter: [@seaniechaos]( Thank you for reading The Morning Reckoning! We greatly value your questions and comments. Please send all feedback to [feedback@dailyreckoning.com.](mailto:dr@dailyreckoning.com) [Greg Guenthner] [Greg Guenthner, CMT,]( is chief strategist at Forge Research Group. He has spent the better part of the past two decades developing long-term and short-term strategies with a single goal in mind: to help everyday investors generate outstanding returns and control their financial futures. Greg’s charts, analysis, and insights have appeared in Marketwatch, Forbes, Yahoo Finance, and many other financial publications. 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