Monthly Asset Class Review

Happy Hump Day!

We’re back at it, and it’s time to see what happened last month in the markets.

Here’s your monthly review.

Please send all questions, comments, and issues to asksean@paradigm.press, as I’d love to hear from you.

Now, without further ado…

August Was More of the Same

Honestly, it was one big snoozefest.  Not like France, which takes the entire month off.  But like a good old American one: let’s just keep going.

Equities show no sign of abating.  Both the SPX and the Nazzie rallied hard, the SPX outpacing the tech index, actually.

The small caps recovered some ground as well.

Bonds continue to vex me, with Treasuries and Junk continuing their respective ascents.  But Investment Grade corporates show signs of fatigue, much to my happiness.

How you can have so much inflation and bonds rallying makes no sense to me.

Later, you’ll see at the summation that the US Long Bond (30Y) got trounced this month.  That makes all the sense in the world to me.

Real estate continues to pay the rent.  Gold and silver look like a fool’s bet right now.  I remain convinced the $2.5 trillion in cryptos would’ve helped the precious metals.

But we now know what investor preferences are.

Bitcoin had a good month; Ethereum, a better month.

Let’s get to the charts, then.

The S&P 500

The SPX has been on an insane tear this year.  We’re up 20.41% year-to-date.  August alone was up 2.9%.  

Since I started this monthly review, I’ve been writing the same thing: there’s no reason to sell large-cap stocks right now.  There’s nothing in the charts that indicates a bearish move.  In the blue box in the above chart, we’ve had six straight monthly rises.

Even one down candle wouldn’t be so much of a worry right now.  Perhaps it’d even be a welcome respite from this relentless rally.

The above chart is the 1-hour chart throughout August.  The only noteworthy thing is that we had another mid-month sell-off, just like in July.  The market just shook it off and the rally into the end of the month was furious.  Again.

The Nasdaq

The Nasdaq set yet another new record this month, closing up 3.37% for the month and 18.4% up year-to-date.  Like the SPX, there are no storm clouds on the horizon to worry about.  All the FAANG tech stocks were up, with GOOG looking particularly strong.

Also, like the SPX, there’s no reason to be bearish at the moment.  

The Russell 2000 (Small Caps)

When it looked like the Russell was about to roll over, it had a nice bounce and a rally to end the month.  

Last month, I wrote the Russell “needs to regain the 50-day MA soon, or you can feel comfortable getting bearish on the small caps.”

The Russell regained its 50-day MA with a big day towards the end of the month in the chart above.

Stand down red alert for now.

The US 10-Year Yield

Let’s get real for a second.  The US National Debt is over $28,000,000,000,000.  That’s 2.8 x 10¹³.  Alpha Centauri is 4.3 light-years away or about 25 trillion miles.  So when I say astronomical, I mean astronomical.

Every time the 10Y yield creeps up just one basis point (1/100th of 1%), that adds $280 billion to the national debt.  So let’s call this game “Powell’s Bowels.”  Because every time the 10Y creeps up, Jay Powell, the erstwhile Chairman of the Fed, wants to soil himself.

So let’s call this an unwanted correction in the 10Y.  Jay and his boys over at the Eccles Building will do everything they can to put their foot back on the curve, keeping that 10Y down.

So buy your crypto and have a care for Powell’s Bowels.

The Dollar Index

The DX rallied this August again, managing to keep its head above the all-important 90ish level.  That means we must put off the dollar’s demise for the time being.  As rates rallied (see 10Y), it makes sense that the dollar would as well.

Still, the sands of reserve currency status seem to be draining away faster than ever, thanks to the Demented-in-Chief’s botched withdrawal from Afghanistan.

Government Bonds

Former US Treasury Secretary Andrew Mellon once quipped, “Gentlemen prefer bonds.”  For the life of me, I can’t figure out why they prefer bonds right now.  Inflation is up, yields are up, and there are so many other assets that return more.

Alas, bonds continue their rally and look steady from here.

I’m still not a fan. 

Investment Grade Corporate Bonds

Finally, a bit of a drop in bonds.  IG bonds look weaker, though not by much.  Interestingly, there seems to be a bit of resistance now at the 135.70 area.  And it hasn’t been able to get through its all-time month-end high of 136.36.  Cautious bearishness is the call here.

High Yield/Junk Bonds

Another snoozefest here is junk bonds, as they act more like equity than bonds at this point in the cycle.

With all the money-printing, it’s no wonder that junk seems to be as safe as houses.  Still, there’s no room for bearishness here, as we’re well above the 200-day MA.

Real Estate

This is a relentless rally, and nothing will stop it but Jay Powell.  It’s not just the easy money perpetuating it; it’s the leverage on top of the easy money.

It’s no secret private equity firms are buying up large swathes of American residential real estate.  But here’s how that works: Fed prints money -> Wall St gets money -> Wall St lends it to private equity cheaply -> private equity buys houses with legally counterfeit money.

Sorry, I know that seems incendiary, but that’s the truth.  It genuinely is a house of cards.  But right now, you just can’t be bearish on real estate.

Base Metals: Copper

Ok, now we may have our first real sign of cracking in the real economy.  Dr. Copper failed to recover its highs after a rally in July.  It was down hard intra-month before recovering to a respectable level.

After such a steep rally, a pause is in order, but I’m not optimistic about where we go next.

Precious Metals: Gold

Here’s my gold commentary: <yawn>

As Robert Redford famously asked in Spy Game, “Chuck, are we going to dance with your hand on my ass all night, or are you going to make a move?”

Up. Down.  Ending in the same place it began.  That’s gold right now.  I’ve got nothing intelligent to add because exasperation isn’t intelligence.

Precious Metals: Silver

Silver is heading farther south, I think.  Fine, you can see a consolidation possibility there if you look hard.  But I don’t.  Silver briefly touched 22, then rallied back to a 24 handle before month-end.

It’s just fallen out of favor.

Give me BTC instead.

Cryptos: Bitcoin

Ok, HODLers, you were rewarded.

I’d like to see some consolidated move to $60,000 and then breaking its all-time high.

Keep on keeping on is the word here.

For July, the equities led the way, followed by commodities, the dollar, and bonds.  Ah, some normalcy…

Cryptos

Ripple led the way with a return of over 64% for the month, followed by Dogecoin and Ethereum.  Bitcoin brought up the rear with an 18.28% return.

That Sums It All Up…

Ok, you’re caught up for this month.

Here’s some inspiration:

All the best,

Sean

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