The Dow Jones just had its best June since 1938. Overall, stocks were up around 7% last month. It was also the best first half for stocks in 22 years.

Meanwhile, gold gained about 8% on the month. As Peter pointed out in his latest podcast, while stocks had significant gains in dollar terms, they actually lost value in terms of real money.

And as Peter pointed out, when you look at the recent stock market gains, you have to put them into context.

“The only reason that the market has done so well this year is because it got destroyed in the fourth quarter of last year. Remember, we had the worst December since the Great Depression as well.”

In fact, if you factor in the fourth quarter of last year, the Dow is only up one-half percent. The S&P 500 has gained about 1% and the Nasdaq is up .5%. In fact, the Dow Transports are actually down about 9% over the last three quarters, and the Russell 2000 is down 8%.

“So, there you get a much better picture of what’s actually going on in the US stock markets than if you just focus on what’s happened in 2019 and ignore what happened in the end of 2018.”

To really put it into perspective, look at the price of gold. Since the end of Q3 2018 the yellow metal is up 18%.

“That is a huge move in the price of gold during that period of time. Now, I think that in the future we can see even bigger moves than what we’ve just seen, but that put the rise in the Dow in perspective because it’s not the Dow that’s going up. Gold has gone up, so in gold-terms, the Dow has lost value.”

And why has this happened?

It’s all about the Fed.

“The Fed has done a complete 180 on monetary policy and that is what has driven what I believe is a bear market rally in the US stock market.”

And Peter said he thinks the last three quarters are really more indicative of what we’re going to see over the next several years then what we’ve seen over the past few years when investors were delusional. They were operating under the false premise that everything was great and the Federal Reserve could simply unwind its stimulus and normalize interest rates and shrink its balance sheet.

“None of that was true. That was a fantasy. And as reality replaces that fantasy, US stocks are going to have a very, very tough time and the dollar is going to have even a tougher time.”

Peter highlighted some more negative economic data that came out last week — specifically weak manufacturing numbers.

“All the actual data that we’re getting is indicating that the economy is weakening, which is the only thing that is powering the stock market rally, because the stock market is preparing for a new injection of monetary stimulus. The Fed is going to be cutting interest rates next month and I think the rate cuts are going to be followed by more quantitative easing.”





Chris Dlugosz, Flickr

Peter reiterated that he doesn’t think it’s going to work this time. Nobody really expected the aggressive easy-money policy we got for nearly a decade after the 2008 crash. Now, everybody expects it. They are even begging for it.

“When they get what they want, I don’t think it’s going to work because I think it will be more of a buy the rumor sell the fact.”

Peter said he doesn’t think it’s going to have the same effect as it did the last time around. He thinks long-term interest rates will rise despite the Fed’s efforts to suppress them. He thinks consumer prices will rise sharply.

And the political climate could make things even worse – especially if one of these 20 Democratic Party presidential candidates wins the 2020 election.

Peter goes on to break down some of the political dynamics.

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