September 26, 2021

Commodity Insight: Stocks and cryptocurrencies poised to get a haircut

A month ago, veteran investor Mark Mobius, founder partner of Mobius Capital Partners, warned that “crazy market moves” in assets such as bitcoin and other cryptocurrencies were being driven by “disorientation and confusion.”

He also warned that the Fed could suddenly dial back their stimulus measures and push interest rates higher due to the specter of rising inflation and the impact of the pandemic.

Personally, I have to say there are, indeed, odd market moves underway amid a great deal of “disorientation and confusion.” It is getting crazy for the entire Big Four, stocks, bonds, currencies and commodities.

Allow me to illustrate how crazy things are getting, which in turn is leading to confusion. On Aug. 18, Minneapolis Fed President Neel Kashkari was quoted as saying: “Cryptocurrencies are 95% fraud, hype, noise and confusion.”

He was quoted by Marketinsider.com as going on to say: “He hadn’t found a sound argument for any practical use for cryptocurrency.

“I was more optimistic about crypto or bitcoin about five or six years ago. So far, what I’ve seen is 99% … let me be charitable, 95% fraud, hype, noise and confusion.”

However, a few days after Kashkari bad-mouthed cryptocurrencies, bitcoin rallied to a new three-month high of $50,280, up from the low of $29,250 posted on July 20. Yes, the leading cryptocurrency, bitcoin, jumped nearly 60% in one month with a Fed governor talking trash about the market — talk about crazy!

But confusing market moves are becoming the norm and not simply with cryptocurrencies. In recent days, cattle futures, not cash cattle, rallied sharply amid questionable fundamentals. December live cattle futures this week rose to a bit over $138, a four-year high while cash cattle were stuck at $122.

Yours truly has been bad-mouthing the cattle market for months, arguing that cattle should not rise over $135, but the market did that with ease this week.

However, here are some words from David Hale’s Cattle Letter posted this week: “We can find no reason for the massive surge in fund/money managers buying the cattle futures today. Full moon was one reason. We thought all the moon traders had passed on, but maybe not? Is there going to be more free money? Interesting to note the strength was concentrated in the front-end today. If the rally in the futures holds, cash will be higher but it definitely is not the leader. For the moment, this market is untradeable.”

Here are a few more pithy comments from Mobius about the market environment in which we live: “A lot of people have cash in hand that they want to do something with, and secondly, a lot of people are confused. The fact that they’ve seen bitcoin, which they had so much faith in, go down the way it’s gone down confuses people.

“So, you have a funny situation with a lot of money in their pocket and lots of confusion and disorientation, so I think that’s what is driving a lot of these crazy moves in the market.”

And the final timely comments from Mobius: You’re going to see a lot of these unusual moves with “some of them justifiable, but a lot of it not justifiable and not logical really,” making for a very uncertain outlook.

“So, at the end of the day, we’re in a very, very uncertain situation. And, of course, that means a recipe for disaster for some people who are investing.”

The comments from Mobius and Hale once again are the reasons I tout my two main rules when investing or speculating in stocks or commodities.

My Rule No. 1 states: No one knows for sure what the markets are going to do. Not for sure, they don’t.

My Rule No. 2 is from that old ancient Chinese saying: “Always use a stop.”

Today, the Fed’s favorite gauge of inflation, the Personal Consumption Expenditures Price Index, climbed 0.4% in July, and the increase equaled a new 30-year high. It was the fifth increase in a row going back to 1991. And this week also showed new all-time high prices for the Dow, the S&P and solid gains for cryptocurrencies.

In recent weeks I have warned repeatedly that there is rampant speculation underway with stocks, crypto markets and commodities even though consumer confidence has recently fallen to a 20-year low.

Based on the crazy market moves underway coupled with confusion and disorientation, I am expecting the stock market and cryptocurrencies to drop sharply because values are too elevated.

Avoid the long side as both markets should get a haircut sooner than later. And to keep track of my bold predictions, go to commodityinsite.com.