Market Update For Late August

Since 1971, hedging risks in the futures market has expanded to include risks in the financial markets, including risks in market volatility, interest rates and bonds, currencies and many of other items. In fact as far as the futures markets are concerned, their primary function today is to hedge the post-Bretton Wood’s financial system’s risks than their original, but still important agricultural markets.

I placed four stars on the chart, at those points in the post-Bretton Woods’ economic order where, for a short time, once again saw $1 of Dow Jones earnings for every $1Bil of CinC, as was frequently the case before 1979. However, after 1979 following each earnings advance up to the CinC plot, the Dow Jones then saw an earnings collapse.

C:\Users\Owner\Documents\Financial Data Excel\Bear Market Race\Long Term Market Trends\Wk 614\Chart #A   DJIA Earnings & CinC 1929-2019.gif

But you’ll note there are only four stars in the chart, while since 1979 earnings for the Dow Jones has attempted to break above the CinC plot six times; the last two in 2014 and now again in 2019 failed to touch the red CinC plot above. What’s the problem? Is “liquidity” flowing into the financial markets finding it increasingly difficult to flow into corporate earnings?

Looking at the earnings spike for 2019, the Dow Jones so far saw its maximum earnings just last month (July) with $1470. But now in August, earnings have declined to $1359, down 7.5% at the end of this week.

Are we going to see yet another boom/bust cycle in the Dow Jones earnings? It’s been doing so since 1979, and now since last month Dow Jones’ earnings have deflated by 7.5%. I’m not making a prediction here. But I will draw your attention to the chart above and let you come to your own conclusions.

Here’s another item that may impact the near-term outlook for corporate earnings; according to a former employee, Disney has been cooking their books for years.Read all about it in this link.

After an investigation by the SEC, we may find Disney’s balance sheet as pure as the driven snow. But the SEC is a conflicted-market regulator; what action did they take after the 2007-09 sub-prime mortgage debacle? Nothing I’m aware of, so I’m not quick believing earnings for Disney are all they, their accountants or the SEC would have us believe.  

If this is true with Disney, who else has been cooking their books? With October only a few weeks away, a month that frequently sees bad things happen in the financial markets, it will be interesting following Dow Jones earnings in the next few months.

Friday, the stock market’s loss was gold and silver’s gains, with both of the old monetary metals advancing nicely as everything else trading on Wall Street deflated. We still haven’t seen a day of extreme market volatility in the gold market (+/- 3%) or silver (+/- 5%) since late 2016. With gold advancing as seen below, maybe it’s best we don’t see a day of extreme volatility for a while. 

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Disclosure: None.

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