Revisiting the White Swans of 2020

At the start of the year, when COVID-19 was barely on anyone's radar outside of China, the global economy was entering a fraught phase, facing a range of potentially devastating tail risks. And though the pandemic has since turned the world on its head, all of these threats remain – and some have become more salient.

Nouriel Roubini

roubini142_william perugini_closed shops

NEW YORK – In February, I warned that any number of foreseeable crises – “white swans” – could trigger a massive global disturbance this year. I noted that:

“… the US and Iran have already had a military confrontation that will likely soon escalate; China is in the grip of a viral outbreak that could become a global pandemic; cyberwarfare is ongoing; major holders of US Treasuries are pursuing diversification strategies; the Democratic presidential primary is exposing rifts in the opposition to Trump and already casting doubt on vote-counting processes; rivalries between the US and four revisionist powers are escalating; and the real-world costs of climate change and other environmental trends are mounting.”

Since February, the COVID-19 outbreak in China did indeed explode into a pandemic, vindicating those of us who warned early on that the coronavirus would have severe consequences for the global economy. Owing to massive stimulus policies, the Greater Recession of 2020 has not become a Greater Depression.

But the global economy remains fragile, and even if a V-shaped recovery from highly depressed output and demand were to occur, it might last for only a quarter or two, given the low level of economic activity.

Alternatively, with so much uncertainty, risk aversion and deleveraging on the part of corporations, households, and even entire countries could result in a more anemic U-shaped recovery over time.

But if the recent surge of COVID-19 cases in the United States and other countries is not controlled, and if a second wave occurs this fall and winter before a safe and effective vaccine is discovered, the economy would likely experience a W-shaped double-dip recession.

And with such deep fragilities in the global economy, one cannot rule out an L-shaped Greater Depression by the middle of the decade.

Moreover, as I predicted in February, the rivalry between the US and four revisionist powers – China, Russia, Iran, and North Korea – has accelerated in the run-up to November’s US presidential election.

There is growing concern that these countries are using cyber warfare to interfere with the election and deepen America’s partisan divisions. A close outcome will almost certainly lead to accusations (by either side) of “election-rigging,” and potentially to civil disorder.

The COVID-19 crisis has also severely exacerbated the Sino-American cold war regarding trade, technology, data, investment, and currency matters. Geopolitical tensions are escalating dangerously in Hong Kong, Taiwan, and the East and South China Seas.

Even if neither China nor the US wants a military confrontation, increased brinkmanship could lead to a military accident that spins out of control. My warning in February that the Sino-American cold war could turn hot has become more salient since then.

In the Middle East, I expected that Iran would escalate tensions with the US and its allies – especially Israel and Saudi Arabia. But, given Trump’s increasingly evident weakness in the polls, the Iranians have evidently opted for a policy of relative restraint, in the hope that a victory for Joe Biden will lead the US to rejoin the 2015 nuclear deal and loosen US sanctions.

But, sensing that its strategic window is closing, Israel has reportedly been launching covert attacks on a range of Iranian military and nuclear targets (presumably with the Trump administration’s tacit support). As a result, talk of Middle East-related “October surprise” is increasing.

I also raised concerns that the Trump administration might use sanctions to seize and freeze China’s, Russia’s, and other rivals’ US Treasury holdings, prompting a sell-off of Treasuries as these countries shift to a geopolitically safer asset like gold.

This fear, together with the risk that large monetized fiscal deficits will stoke inflation, has since caused a spike in gold prices, which have risen by 23% this year, and by more than 50% since late 2018.

The US is indeed weaponizing the greenback, which has recently weakened as US rivals and allies alike seek to diversify away from dollar-denominated assets.

Environmental concerns are also mounting. In East Africa, desertification has created ideal conditions for biblical-scale locust swarms that are destroying crops and livelihoods. Recent research suggests that crop failures due to rising temperatures and desertification will drive hundreds of millions of people from hot tropical zones toward the US, Europe, and other temperate regions in the coming decades.

And other recent studies warn that climate “tipping points” such as the collapse of major ice sheets in Antarctica or Greenland could lead to a sudden catastrophic sea-level rise.

The links between climate change and pandemics are also becoming clearer. As humans increasingly encroach on wildlife habitats, they are coming into more frequent contact with bats and other zoonotic disease vectors.

And there is growing concern that as the Siberian permafrost melts, long-frozen deadly viruses will resurface and quickly spread around the world like COVID-19 did.

Why are financial markets blissfully ignoring these risks? After falling by 30-40% at the beginning of the pandemic, many equity markets have recovered most of their losses, owing to the massive fiscal-policy response and hopes for an imminent COVID-19 vaccine.

The V-shaped recovery in markets indicates that investors are anticipating a V-shaped recovery in the economy.

The problem is that what was true in February remains true today: the economy could still quickly be derailed by another economic, financial, geopolitical, or public-health tail risk, many of which have persisted and, in some cases, grown more acute during the current crisis.

Markets are not very good at pricing political and geopolitical – let alone environmental – tail risks, because their probability is difficult to assess.

But, given the developments of the last few months, we should not be surprised if one or more white swans emerge to shake the global economy again before the year is out.

Nouriel Roubini, Professor of Economics at New York University's Stern School of Business and Chairman of Roubini Macro Associates, was Senior Economist for International Affairs in the White House’s Council of Economic Advisers during the Clinton Administration. He has worked for the International Monetary Fund, the US Federal Reserve, and the World Bank. His website is, and he is the host of


by Egon von Greyerz

What does it take to break the global financial system?

Well, we obviously know what it takes since the system is already broken. Broken by debts, broken by deficits, broken by a fractured financial system, and broken by false markets as well as fake money.

So just like Humpty Dumpty, the system has already had a big fall. But the world still believes that this is all a fairytale with a happy ending. No one wants to recognise that Humpty is totally broken and irreparable.


All the king’s men, in the shape of the Fed and other central banks plus governments, are desperately trying to put Humpty back together again.

The problem is that the glue just won’t stick. Already back in 2007-9 and thereafter, massive amounts of glue were applied in the form of unlimited money printing and credit creation.

The problem was that a remedy in big quantities serves no purpose if the quality is poor.

Fortunately for the king’s men, nobody realised that they worked with inferior material. Equity markets only care about quantity and there certainly was enough glue or printed money.

So it has been all about quantity or printing a lot of worthless money. Why else would it be called QE or quantitative easing?


QE is one of these Hocus Pocus words, invented by TPTB (the powers that be), which sounds important and mysterious. But for us normal mortals it should be called MP or money printing.

That’s all it is, but since money printing sounds quite crude, the Fed and Co think they can get away with a posh word which nobody understands. All QE stands for is printing money in great quantities.

But let’s just understand that the glue or printed money which is supposed to fix the financial system is fake. There is no chance that all the king’s horses and all the king’s men can put the system together again.

A world which has got used to a rising living standards based on debt and fake money is under the illusion that this is all that is required to create wealth. A fake world and an illusory financial system cannot survive without creating real values based on hard work with the production of goods and services.

Sustainable wealth can never be achieved by financial wizardry and hocus pocus money.


A few of us have understood that the end game would consist of unlimited creation of debt and fake money. Not because anyone believes that the biggest debt bubble in the world will disappear by issuing more debt. But this is the only remedy left to a totally dumbfounded system which has for years dug its own grave.

It is into this grave that Humpty has fallen. The king’s men believe that they can pull him out like they have for decades but this time it won’t work.


TPTB are desperately working on solutions. For example, the WEF (World Economic Forum) in Davos are calling the next Forum in early 2021 “The Great Reset”.

They have created a Strategic Intelligence Platform which will help the members to control the world. Strategic Partners of the WEF will be members of a number of platforms from which they intend to orchestrate the Great Reset.

These platforms include “Shaping the future of: Technology, Blockchain, New Economy & Society, Future Consumption, Digital Economy, Financial and Monetary Systems, Trade, Cities & Infrastructure, Energy, Media & Culture etc.

Well, it sounds like they plan to control everything.

Central bankers, bankers, industrialists incl. Bill Gates, IMF MD, ECB President Lagarde, Mark Carney former Bank of England governor etc are all members.

The WEF has developed the Fourth Industrial Revolution (4IR) which “will leave no aspect of global society unchanged”.


All this sounds quite frightening but that is clearly the intention too. George Orwell’s 1984 is not just approaching at great speed but also becoming more realistic by the day.

There is only one major problem. Whatever wizardry and however much glue TPTB apply, there is just no way that a system that is totally broken can be repaired. The world has reached the end of the road and will need a reset.

But even if TPTB attempt an orderly reset with debt moratoria and a new artificial reserve currency like a crypto dollar, it can at best only fool the world for a very brief period.


The real reset, which will be disorderly, will inevitably happen thereafter. This will involve an implosion of the financial system including debt, stock and property markets. Sadly Humpty will be totally buried in the rubble of this collapse.

As I have pointed out many times, the world can only attain real growth in a system which has eliminated a mega debt which can never be serviced or repaid. What must also implode are fake bubble markets and false money.

The transition to a sound system will clearly be very painful for the world, but sadly totally necessary.


Before we get there, we will see more of the same, namely unlimited money printing which has already started. But we have only seen the mere beginning. The danger with a global financial system is that nobody can escape.

Everything is totally interconnected and interlocking. A serious problem in a Hong Kong bank will instantaneously reverberate around the world and within minutes affect the whole financial system.

Take Deutsche Bank (DB) which many observers have for many years expected to fall. It has equity of €57B which is only 4% of their total balance sheet. In addition, their gross derivative exposure is €44 trillion. The market cap is just €18B, well below the equity. So the market clearly doesn’t believe the net asset value is real.

A 5% bad debt write-off or a 0.13% loss in derivatives would be enough to wipe out DB. It would be surprising if the losses on the debt portfolio were less than 25% or derivative losses less than say 5%. Still, these magnitudes of losses would bankrupt DB.


Derivatives is a nuclear bomb and when a counterparty fails, the $1.5+ quadrillion bubble will burst in one fell swoop.

In a fractured global financial system where every single entity is under-capitalised. It will take very little to bring everything down at once. And that is not an improbable outcome in the next few years.

This brings us back to gold which stands as La Grande Resistance against the broken Humpty or financial system.

It is no coincidence that gold is the only money that has survived every single financial crisis in history. For 5,000 years, there has been no permanent replacement for gold.

And whatever alternative governments and central bankers come up with to solve the current crisis, it can never replace nature’s money. Gold is eternal money and the only reserve currency that has stood the test of time.

Egon von Greyerz
Founder and Managing Partner
Matterhorn Asset Management

Central banks expand their role to address the crisis

Far from being impotent, they have again been crucial actors in the pandemic

Gavyn Davies

Measures taken by Federal Reserve chair Jay Powell, left, with treasury secretary Steven Mnuchin, have been instrumental in reversing the dangerous tightening in financial conditions that has occurred © Tasos Katopodis/Getty

Before the economic crash caused by the coronavirus pandemic in March, it had been widely assumed that central banks would be largely impotent in the face of a renewed recession.

With interest rates close to the zero lower bound in many advanced economies, there seemed little scope to respond to an economic slowdown, either by directly reducing policy rates or by using asset purchases to lower long-term risk-free rates.

The concerns about rates proved largely justified, but the central banks were still able to stem the crisis by expanding the scale, scope and riskiness of their balance sheet activities.

The vast array of measures taken by the US Federal Reserve and the European Central Bank since March have been instrumental in reversing much of the dangerous tightening in financial conditions that occurred earlier this year.

In its recent annual report, the Bank for International Settlements concluded — with apparent approval — that central banks have “deployed their full arsenal of tools, sometimes in unprecedented ways” and “have been able to cross a number of previous red lines to restore stability during this crisis”.

The most obvious innovation has been to speed up and expand their government bond purchases, indirectly financing a large part of the increase in budget deficits needed to address the crisis.

In only a few weeks, most of the major central banks have increased the size of their balance sheets by 7 to 16 per cent of gross domestic product, more than in the two years following the 2008 financial crisis. Although dramatic, the economic impact of large-scale government bond purchases is questionable.

Unlike in 2008-11, there is little or no scope for the Fed to reduce the premium investors receive for longer-term US treasuries, though the spreads among bonds issued by EU members have clearly shrunk.

Many governments could have engineered much the same result by financing their budget deficits with newly issued short-dated treasury bills. After all, the consolidated balance sheet of the public sector contains the central bank’s liabilities.

Under this interpretation, the central banks may have facilitated a fiscal expansion that could have happened anyway.

Another instrument that central banks adopted in very large scale in this crisis has been the provision of lender-of-last-resort facilities to the banking sector. Most of these have been through open-market operations and discount window lending. As usual, the ECB has relied heavily on targeted refinancing operations to inject liquidity.

However, the Fed has gone much further than the ECB in developing new instruments to restore financial stability and promote credit flows, leveraging government money in the process. Some of these programmes fall into the category of serving as market-maker-of-last-resort, a type of intervention that barely existed before 2007.

MMLR activities occur when central banks address market illiquidity by directly buying a wide range of risky financial assets, or accepting them as collateral. That allows asset holders to obtain cash by lending these securities out, rather than having to dump them into the market.

Such interventions are designed to prevent self-reinforcing runs on specific financial products, including money market mutual funds, commercial paper, leveraged bond funds and asset backed securities.

In financial systems that depend on non-bank providers of credit, there is a strong case for using such MMLR interventions to prevent financial panics, which can result in permanent reductions in asset prices, credit and economic activity.

The Fed’s extremely aggressive government bond purchases in March were designed to prevent illiquidity in the treasury market causing a run on the world’s most important “safe” asset. It also falls into the category of MMLR and was a key moment in ending the financial crisis.

These asset purchases are different from those conducted under quantitative easing, because MMLR buying should in theory be reversed as soon as market liquidity is restored. But other Fed lending programmes may prove harder to unwind.

These are taking place under Section 13(3) of the Federal Reserve Act, which permits unusual and exigent lending to non-financial, solvent entities.

With Treasury guarantees protecting the first tranche of any losses, these programmes could theoretically unlock more than $4tn of loans from the central bank to private corporations and municipalities. The Main Street Lending Facility, designed to help with the “last mile” of the loan process for small and medium-sized enterprises, could reach $600bn.

Though the announcement effects of these programmes were powerful, take up has been slow.

Now that the Fed has entered this controversial territory, both after 2008 and in the current pandemic, it has greatly expanded the potential future role of central banks to influence markets via their balance-sheet operations, at least during emergencies.

For investors, “don’t fight the Fed” is taking on an entirely new meaning — even at the zero lower bound for interest rates.


Chris Vermeullen

Continuing this multi-part research article, today we are going to explore some more immediate (shorter-term) technical setups. If you missed the first part of this research article, please take a minute to review it before continuing because there is quite a bit of information and related article links that are very important for you to understand this next article.

In the first part of this article, we discussed how our team evaluates a proper market perspective and how we build a consolidated narrative for our subscribers. Some times, it is not easy for us to build a suitable narrative or decide on risk factors as our team may not completely agree with one another. 

At times like this, we’ll often decide that no action is better than taking any action at all. Generally, though, our team is able to adopt a consensus narrative related to portfolio allocation levels, general market trends and specific target trade setups for the next 5 to 10+ trading days.

The Technical Traders services’ primary objective is to protect assets while attempting to deliver success with trading signals that generate consistent profits. We care, very deeply, about our members and their success. Our team has a combined experience in the markets of over 55+ years, and have lived through various market and economic scenarios going back over 35+ years.

We have also had the opportunity to learn from some of the best technicians and analysts on the planet. We publish our public research for two primary reasons: a) to assist our friends and followers, and b) to publically document our future calls and predictions – putting our necks on the line every time we publish anything to the general public.

When we develop a narrative for our members, we internally discuss longer-term and shorter-term expectations as well as to identify concerns or risks that we see as evident in the markets or setups that are present today. As we suggested in Part I of this article, we don’t try to over trade and are very selective in our trades.

We also have processes in place to ensure we have found the right risk /reward ratio prior to initiating new trades. If we miss a move – we won’t chase it – there will always be other trades setting up for us to capture new profits for our members. We see some interesting events unfolding that will undoubtedly lead to some fantastic trades.

Be sure to opt-in to our free market trend signals before closing this page so you don’t miss our next special report!


The chart above highlighting the PUT/CALL ratio suggests sellers are lining up near recent highs, expecting the markets to roll over as the Q2 earnings and data are released. It makes sense that the data could be somewhat bearish in nature given the potential destruction of earnings and revenues in Q2. 

It also makes sense that near recent highs, as the S&P 500 and Dow Jones have recently rolled into a sideways consolidation, that skilled traders would pull profits near these levels and initiate new Put Options trades to hedge any downside risks in the future.

Gold and Silver recently fired a very large warning shot for anyone paying attention. The US Dollar has continued to weaken and Crude Oil may begin a new downside price trend if the economic data suggests a broader contraction in the US economy. What all this means is that skilled traders and others are losing their bullish bias in the markets and are starting to become protective – expecting some type of new trend to setup.

Our researchers believe a downside price move targeting the $252 level on the SPY is not out of the question. Recall the $252 level is a price level that corresponds with economic expectations as of late 2017. 

These levels represent a fairly nominal price correction that would still be considered moderate bullish overall. Any deeper price move would indicate the markets are completely disconnected with future expectations for the rest of the year and possibly further out into the future.


The VIX is trading at levels that indicate the level of fear in the markets has recovered to historically moderately high levels (near 25.00) – see the chart below. Volatility is still a major factor in the markets and any change in trend could be aggressive and violent – sending VIX above 40.00 again. 

We believe this new low level in the VIX is indicative of complacency in the markets and with the current bullish price trend. Complacency in the markets tends to lead to very aggressive price corrections. We believe skilled technical traders should adopt a very cautious stance going forward and protect open long positions exposed to risk.

If the markets begin to breakdown on the Q2 GDP and Consumer data that will be released on Thursday, July 30, 2020, then the VIX will begin to move dramatically higher. In this situation, stop levels just below the current market price levels will begin to become targets. 

We can also expect to experience a similar event as that of February 2020, a type of flash-crash where a -12 to -18% downside price move could happen over a matter of days – not weeks.

Pay attention to what happens in the Transportation Index and with Crude Oil and Gold and Silver. Our researchers follow these as early warning triggers for what may come. Additionally, our cycle research suggests a bottom in the markets will likely form in 2022 to 2023 – thus we may have quite a bit of sideways or downside price action ahead of us before a true market bottom completes. 

At this point, in order for our cycle research to become valid, we would need to see a downside price move that substantiates the cycle predictions.

Right now, the advice we continue to provide to our members is to be patient, protect your profits and assets, and prepare for more volatility and risks. This is not the time to play games with your capital and we strongly believe this is not the time to “buy the dips”. 

A bigger price pattern is setting up in the markets and many traders simply ignore these broader technical patterns. You can read more about these types of patterns in one of our recent research posts that explains the selloff structure. You can also see why we think gold will break out and silver will go ballistic once the stock market bottoms.

We hope you’ve found this multi-part research article helpful and informative. Remember, read our research and determine if you like and agree with our conclusions. Even if you don’t agree, pay attention to what we are suggesting. 

You never know, it might lead you to make a decision that could help you protect your assets, find a new opportunity or, at the very least, help to keep you better informed – and that is our ultimate goal. 

We put this effort into publishing these public research articles every day to help you stay ahead of the biggest moves in the markets.

See the articles listed above and read them to learn more about how we see the future unfolding. We believe you won’t find any better research or analysis anywhere on the web than what we offer and we urge you to take advantage of our member/subscriber services when you are ready. 

 The next 24 months are going to be really crazy – get ready for some really great opportunities.

The Politics of a COVID-19 Vaccine

Even if one or more vaccines emerge that promise to make people less susceptible to COVID-19, the public-health problem will not be eliminated. But policymakers can avert some foreseeable problems by starting to address key questions about financing and distribution now.

Richard N. Haass

haass115_MLADEN ANTONOVAFP via Getty Images_coronavirusvaccine

NEW YORK – The global toll of the COVID-19 pandemic is enormous: more than a half-million lives lost, hundreds of millions out of work, and trillions of dollars of wealth destroyed. And the disease has by no means run its course; hundreds of thousands more could well die from it. 

Not surprisingly, there is tremendous interest in the development of a vaccine, with more than a hundred efforts under way around the world. Several look promising, and one or more may bear fruit – possibly faster than the several years or longer it normally takes to bring a vaccine on line.

But even if one or more vaccines emerge that promise to make people less susceptible to COVID-19, the public-health problem will not be eliminated. As any medical expert will attest, vaccines are not panaceas. They are but one tool in the medical arsenal.

No vaccine can be expected to produce complete or lasting immunity in all who take it. Millions will refuse to get vaccinated. And there is the brute fact that there are nearly eight billion men, women, and children on the planet. Manufacturing eight billion doses (or multiples of that if more than one dose is needed) of one or more vaccines and distributing them around the globe could require years, not months.

These are all matters of science, manufacturing, and logistics. They are sure to be difficult. But the politics will be at least as challenging.

For starters, who will pay for any vaccine? Companies will expect to recoup their investment in research and development, along with the costs of production and distribution. That is already tens of billions of dollars (and possibly much more) – before the question of profit is even introduced. There is also the related question of how companies that develop a vaccine will be compensated if they are required to license the patents and know-how to producers elsewhere.

The toughest political question of all, though, is likely to concern access. Who should receive the initial doses of any vaccine? Who determines who is allowed into the queue and in what order? What special advantages accrue to the country where a vaccine is developed? To what extent will wealthier countries crowd out poorer ones? Will countries let geopolitics intrude, sharing the vaccine with friends and allies while forcing vulnerable populations in adversary countries to the back of the line?

At the national level, every government should start to think through how it will distribute those vaccines it produces or receives. One idea would be to administer it first to health-care workers, followed by police, firefighters, the military, teachers, and other essential workers. Governments must also consider what priority to give those at higher risk of developing serious complications from COVID-19, such as the elderly and those with preexisting conditions. Should a vaccine be free to some or all?

At the international level, the questions are even more complex. We need to make sure that production can be scaled rapidly, that rules are in place for availability, and that sufficient funds are pledged so that poorer countries are covered. Gavi, the Vaccine Alliance, the World Health Organization, several governments, and the Bill & Melinda Gates Foundation have formed the COVID-19 Vaccine Global Access (COVAX) Facility. Its creators propose that any effective vaccine that emerges be treated as a global public good, to be distributed equally around the world, regardless of where it was invented or of a country’s ability to pay. The WHO has put forward a global allocation framework that seeks to ensure priority for the most vulnerable populations and health-care workers.

But such approaches may be unrealistic. It is not just that the COVAX effort lacks adequate funding, the participation of the United States and China, and clear authority. It is that all governments are sure to come under enormous pressure to take care of their own citizens first. Vaccine nationalism is almost certain to win out over vaccine multilateralism.

Recent history reinforces this skepticism. COVID-19 emerged in China and quickly became a worldwide problem. Responses, though, have been mostly along national lines. Some countries have fared relatively well, thanks to their existing public health systems and political leadership; with others, it has been just the opposite.

Continuing this national-level approach to a vaccine is a recipe for disaster. Only a handful of countries will be able to produce viable vaccines. The approach must be global. The reasons are not just ethical and humanitarian, but also economic and strategic, as global recovery requires collective improvement.

In Iraq, when military progress outpaced planning for the US-led war’s aftermath, the result was chaos, or “catastrophic success.” We cannot afford an analogous outcome here, with success in the laboratory outpacing planning for what comes next.

Governments, companies, and nongovernmental organizations need to come together quickly, be it in the COVAX initiative, under the auspices of the United Nations or the G20, or somewhere else. Global governance comes in all shapes and sizes.

What is essential is that it comes. The lives of millions, the economic welfare of billions, and social stability everywhere hang in the balance.

Richard N. Haass, President of the Council on Foreign Relations, previously served as Director of Policy Planning for the US State Department (2001-2003), and was President George W. Bush's special envoy to Northern Ireland and Coordinator for the Future of Afghanistan. He is the author of The World: A Brief Introduction.

Technically Speaking: 'Golden Cross' Arrives, Are The Bulls Safe?

by: Lance Roberts

In this week's "Technically Speaking," the "Golden Cross" arrives, but are the bulls safe?

As noted two weeks ago, the 50/200 dma crossover is historically bullish for equities.

However, with markets facing one of the worst earnings declines on record, could overly exuberant investors be walking into a trap?
In this week's "Technically Speaking," the "Golden Cross" arrives, but are the bulls safe?

As noted two weeks ago, the 50/200 dma crossover is historically bullish for equities.

However, with markets facing one of the worst earnings declines on record, could overly exuberant investors be walking into a trap?
Let's start with what we wrote previously:
"As shown below, the market broke out of that consolidation and triggered "buy signals" across multiple measures. This breakout will give the "bulls" an advantage in the short term with a retest of the June highs becoming highly probable."

"The bulls will also gain some additional support from the "Golden Cross" (when the 50-dma crosses above the 200-dma). That "bullish signal" will likely occur over the next week or two depending on market action."

As noted then, the "bullish supports" for the market kept our portfolio allocations weighted towards equity risk.
The "Golden Cross" Arrives
This week, the "Golden Cross" occurred as the 50-dma crossed back above the 200-dma.
As suspected, the media was quick to take note. As noted by this headline from CNBC:
Bloomberg, via Yahoo Finance, was also quick on the trigger:
"The S&P 500 is sending a technical signal that has marked the end of every bear market in modern history."
As Jeffrey Marcus noted at RIAPRO.NET, the "Golden Cross" is indeed bullish for stocks.

"On Thursday, the S&P 500's 50-DMA crossed above the 200-DMA. Such is known as a "Golden Cross" and has now happened 25 times over the past 50 years. The long-term performance of the S&P 500 following such an occurrence is unabashedly positive. 
TPA calculated the performance of the S&P 500 10, 20, 40, 80, 160, and 320 days following each of the 25 Golden Crosses since 1970. The average performance is 0.88%, 0.98%, 3.25%, 6.73%, 9.57%, and 15.70%, respectively. 
The positive cross has happened 6 times in the past 10 years. The averages for 10, 20, 40, 80, 160, and 320 days following each was 0.53%, 0.89%, 2.64%, 8.17%, 10.45%, and 20.95%, respectively. "
No Guarantee Short Term
While it is undoubtedly bullish from a historical standpoint, it isn't always as simple as it seems. As Jeff further notes:
"There were years when using the S&P 500's Golden Cross as a buy signal was a lot trickier than just owning stocks for the entire 320 days. In the years of 1977, 1984, 1990, 1994, 1999, 2015, and 2019, the signal either did not work or spent long periods in negative territory. "
Such was a point also confirmed by, where Jason Goepfert has analyzed these types of technical signals for decades. He found they're "barely useful" as a standalone metric. Take 2019, for example, when a golden cross registered, only completely to reverse a year later with the COVID-19 crash.
"We wouldn't put a lot of faith in the golden cross by itself. The biggest reason for optimism is that it has reversed what had been a very negative medium- vs. long-term trend. That has led to big gains over the next 6-12 months every time over the past 70 years." - Jason Goepfert
An excellent example of a period where the "best of indicators" can lead you astray was in 2015.
While the "Golden Cross" has a strong record over 12 months, it doesn't mean it will be a straight line higher.
At that time, the markets climbed above the 200-dma, combined with a "Golden Cross" as the 50-dma also "crossed the Rubicon." While the media bristled with bullish excitement, it was quickly extinguished as the markets set new lows as "Brexit" engulfed the headlines.
Importantly, while concerns about a "Brexit" on the global economy were valid, "Brexit" never materialized.
Conversely, the economic devastation in the U.S., and globally, is occurring in real-time. The risk of market failure as "reality" collides with "fantasy" should not be dismissed. It CAN happen.
Such doesn't mean the next great "bear market" is about to start. It does mean that a correction back to support that reverts those overbought conditions is likely.
Such is why, as we discussed this past weekend, we took actions to reduce risk within our portfolios.
Lot's Of Hope
The current advance is not built on improving economic or fundamental data. It is largely built on "hope" that:
  • The economy will improve in the second half of the year.
  • Earnings will improve in the second half of the year.
  • Oil prices will trade higher even as supply remains elevated.
  • The Fed will not raise interest rates this year.
  • Global central banks will "keep on keepin' on."
  • The U.S. Dollar doesn't rise
  • Interest rates remain low.
  • Bankruptcies and delinquencies will subside.
  • More stimulus will come from the federal government
  • A vaccine will soon be available.
  • The pandemic will subside
  • There will be a "V-shaped" economic recovery
  • Employment will recover quickly.
I am sure I forgot a few things, but you get the point. There is a lot of "hope."
However, "reality" may be more disappointing. Such is particularly the case with valuations expensive, markets overbought, and sentiment pushing back into more extreme territory.
There is much that could go wrong.
Technical Review Of The Market
While the "Golden Cross" is certainly bullish over the next 6-12 months, it is important to note that markets are currently egregiously overbought on a short-term basis.
Furthermore, speculative excess has certainly become evident in the market on a variety of levels.
However, options contracts are an excellent indicator of exuberance.
As Jason went on to note:

"In mid-February, we saw that options traders were speculating heavily, a disturbing wrinkle in the positive momentum that markets were enjoying at the time. The pandemic slapped that speculation out of them. For a while. 
They returned in force, and by early June, surpassed any previous speculative record. It was enough to push the ROBO Put/Call Ratio to the lowest level since November 2007. 
Among all traders, the Options Speculation Index gives us a very good view of the distribution of speculative versus hedging activity on all U.S. exchanges. Once again, it's above 50%, meaning that they opened 50% more bullish contracts than bearish ones.
Rebalancing The Equity Portfolio
For all of these reasons, this is why we chose to reduce our risk a bit last week.

"For the second time in a single year, we have begun the profit-taking process within our most profitable names. Apple, Microsoft, Netflix, Amazon, Costco, PG, and in Communications and Technology ETFs. 
(Note: Taking profits does not mean we sold the entire position. It means we reduced the amount of our holdings to protect our gains.)"
Taking profits in our portfolio positions remains a "staple" in our risk management process.
We also continue to maintain our "hedges" in fixed income, precious metals, and a slight overweight in cash.
We don't like the risk/reward of the market currently and continue to suspect a better opportunity to increase equity risk will come later this summer.
If the market violates the 200-dma, or the current consolidation is breached to the downside, we will reduce equity risk and hedge further.
My colleague Victor Adair at Polar Trading, previously made a valid observation.
"The growing divergence between the 'stock market' and the economy the past several months might be a warning flag that Mr. Market is too exuberant. With the Presidential election just over 3 months away, the polls show that Biden may be the next President. The U.S./China tensions have been escalating, and the virus's first wave continues to spread around the globe."
I agree. While the markets may be ignoring the risks for the moment, markets have a nasty habit of delivering unpleasant surprises. Such is particularly the case when a handful of "Megacap" stocks are driving the markets higher. (H/T
What lifted the market higher can, and usually does, become the catalyst that pulls it down.
It's Probably A Trap
I can't explain the current market environment. Yes, it is the liquidity from the Fed. It is also a chase for momentum. Regardless of the explanation, price is driving portfolio management for now.
We can deny it, rail against it, or call it a conspiracy.
But in the "other" famous words of Bill Clinton: "What is…is."
The markets are currently betting the economy will begin to accelerate later this year. The "hope" that central bank actions will indeed spark inflationary pressures and economic growth is a tall order to fill, considering it hasn't worked anywhere previously.
If central banks can indeed keep asset prices inflated long enough for fundamentals to catch up with the "fantasy" - it will be a first in recorded human history.
My logic suggests that sooner rather than later, someone will yell "fire" in this very crowded theater.
When that is, is anyone's guess.
In other words, this is all probably a "trap."
But then again, "hope does spring eternal."
Pay attention to how much risk you are taking. The "Golden Cross" doesn't provide the bulls a "guarantee of safety."