Category Founder’s Trading Journal

Navigator Algorithms – Back to Cash

I likely won’t get the saying right, but it goes something like “some months seems to last weeks and some weeks seem to last years.” This week seems to fit the bill as one of those weeks that lasts years.

We started the first week of 2021 by briefly tagging all-time index highs on Sunday night. By Monday, the indexes had chewed up nearly 3.5% to the downside before slightly recovering on Monday afternoon. By Wednesday, disgruntled voters had seized the capital building in Washington, D.C., and by Thursday we had achieved new, all-time index highs. We are flirting with slightly higher levels this morning.

Perhaps the Fed had a hand in keeping the equity markets stabilized, but having captured a nice, 37% return in the core, Navigator model in less than 24-hours, we took the profit and went back to the sidelines so I could take the weekend to digest everything.

The chart above is something we all need to digest. In the midst of the turmoil this first week of 2021, U.S. Treasury interest rates gapped higher every day. Admittedly, rates are still low. Nevertheless, many variable-rate mortgage loans reset in January, and higher rates will zap more of these borrowers ‘ already thin incomes. Most importantly, with trillions of Chinese Virus related sovereign bond rollovers around the world coming up in March, the trend of rising interest rates is more than disturbing.

For fun (I have a twisted sense of humor), let’s run the U.S. deficit numbers once more on these pages, but this time with a bit more precision. Here is the live capture of the national debt (just the Federal) at this writing.

So we have about $27.7 trillion in current national debt. By the way, you can also see the $4 trillion budget deficit we currently run to add to the total (in the lower right corner of the chart above). For some context, then, let’s now take a quick peek at the annual interest on the debt

Ok, that figure is in the upper right-hand corner of the chart above at $392 billion. Now, let’s do a quick calculation of what happens with each increase of one half of 1% (.50%) in interest rates. This is kind of like calculating the difference in your mortgage or car loan payment at 1/2 of 1% intervals. I don’t think my calculator goes that high, so I will illustrate the point with an excel spreadsheet.

Alrighty then, as Jim Carrey would say, for every one-half of 1% rise in rates, we add $138 billion in annual interest. With the current, annual budget at about $3.6 trillion, a rise in interest rates from their current levels close to zero to say 3.5%, would add close to $1 trillion in additional interest payments to the annual budget. That is more than we currently spend on defense, about the same amount we spend on social security, and a bit less than we spend on medicare/medicaid. The figures are in the chart directly above us.

By the way, even these figures assume no increase in the debt – which is sadly an erroneous assumption. Its just that you have to freeze the figures for a few minutes to even be able to analyze them briefly. Just while I have been writing this, the debt has risen another $90 million.

Investors, friends, and family, how can this possibly end well? I hope you are looking forward to my 2021 outlook video. I will share what all of us can do to survive what our government is doing to us. It does not matter whether they have an “R” or a “D” next to their name; they are all in on it. There is not enough of a tax base to handle this, even if you ban all abortions forever.

So, I will have more to say, but we need to think hard and be careful for now.

A.F. Thornton

Given that we have a significant, short-term profit and we are back to the top of the rising wedge, we just issued a sell signal to the Founder’s group at 3801. But anywhere in this realm is fine. I will discuss this move more thoroughly in the next outlook.

Navigator Algorithms – Fully Invested

Yesterday is one of those days likely to remain imprinted in your mind, like 9/11 or the Challenger disaster. We are experiencing history – as it may be written in the future (or erased as the case may be). But as expected and mentioned previously in these pages, the left now has full control of our government, and Biden will be seated on January 20th.

I suppose I should disclose that I spent most of my youth as a registered Democrat and worked for a Democrat Congressman for a year before focusing on investing and trading as my career. I have never been a huge fan of Trump’s personality, but I supported and experienced the benefits of many of his policies. I also believe that he sincerely cares about our country and the people who supported him. As I have aged and experienced more of life, I became a Libertarian. I recognize the folly of government and prefer as little of it as possible. As you know, I avoid the subject of politics unless it impacts the market, as it currently does.

The next week or so will be about the mainstream media attempting to manipulate the narrative and put the final nail in the Trump presidency’s coffin. Perhaps the corrupt left and right will invoke a last-minute impeachment or the 25th amendment to finish him off. Nothing would surprise me – he is and remains an existential threat to the Great Reset, the New World Order, and the global collectivism that our fellow citizens have now voted (most unknowingly) to replace our current economic system.

While nobody is blameless in the wake of the China Virus (even my spellchecker is trying to sensor me to change China Virus to “COVID-19”), yesterday could have been avoided with consent to a simple audit of the disputed election results in a few places. A simple solution. The lack of transparency has contributed more to the strife and distrust than the cheating itself. It is not unlike the old saying that the cover-up is often worse than the crime.

When I whittle down all the claims, there was obvious and rampant cheating. But I also recognize that the Republicans got legally outhustled by many progressive organizations on the ground, financed by anti-Trump, anti-nationalist, and global interests, including China. This is just another variation of my central mantra and thesis – if you want to get to the bottom of things – “follow the money.”

The global, monied interests threatened by the Trump presidency and U.S. economic nationalism boggles the mind. The global elites usually have their way, as they have throughout history. If nothing else, we have been allowed to witness this in real-time.

We should not be required to move forward as a nation with doubts about the election results. The dark cloud will linger, perhaps sewing the seeds of our own destruction as a nation. The fact that the election defenders refused any modicum of transparency is why yesterday happened. Any other proffered reason – or pathetic blame narrative – is pure crap. Use your own common sense.

This is not complicated. The most dangerous time in a democracy is when the public, or any significant portion of the public, believes that the institutions they have long trusted to protect them instead fail them.

In the middle of all this, the Navigator Algorithms delivered a buy signal at 3628.50 on the S&P 500 Index. The algorithms, being math robots, don’t care about politics, emotion, or the narrative. Therein lies their value. They plug along, analyzing a set of variables associated with positive or negative price action.

However, we know that the market narrative (at its essence) remains that the S&P 500 index has been battling to retake both 3700 and 3750. The market is trying to look beyond the virus and the election to a broad-based recovery – initially boosted by the stimulus and eventually followed by a return to some “new” normal. Achieving these 50 point milestones simply affirms (or rejects) the narrative.

In this chair, I have the opportunity to observe the economic positives and negatives down to a micro-level. I always remind myself that we control the things we can and let go of the things we can’t.

I am not yet entirely sure what it will mean to have the left in full control of our government again. But what I am sure of is that an economic reckoning lies ahead. As I stated some weeks ago, the likely victor in the 2020 election would be both a winner and a loser. The victor is likely to preside over an economic collapse and depression.

Republicans had full control of the government when the stock market crashed in 1929, and the depression subsequently ensued. Not surprisingly, they never had such control again until a brief period in 1954.  While the depression resulted from many problems that grew over time (as is the case now), those in charge when it happened got the blame. It will be no different this time.

Let’s also allow for the possibility that the Fed may be boosting the market a bit to compensate for the political chaos. We cannot be sure. Most of the negative action has been associated with rotation rather than investors exiting the market. So the consolidation since November and the fact that the S&P 500 is firing on a long, volatility squeeze associated with the consolidation is a net positive.

We will continue to use the 5-day, exponential moving average as our stop. The stop currently sits at about 3740.

Stay tuned for my 2021 outlook video. Most importantly, stay safe.

A.F. Thornton

Footnote from my spellchecker censor:

“In recent years, medical authorities have moved away from naming illnesses after places or groups of people. Using unofficial names that associate disease with a particular region or group of people can lead to inaccurate assumptions and bias.”