CWS Market Review – May 21, 2024

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The S&P 500 has closed higher 11 times in the last 14 sessions. What’s interesting is how small those three drops have been.

The largest loss of the three came on May 16 when the index fell just 0.30%. By historical standards, that’s not much. The second-worst drop came on May 13 when the S&P 500 lost a tiny 0.02%, but that doesn’t compare with the absolutely miniscule loss from May 8.

On May 8, the S&P 500 closed lower by 0.03 points. In percentage terms, the S&P 500 lost 0.0006%. The drop from May 13 was 41 times that of the loss from May 8, and the loss from May 8 was tiny to begin with.

If the stock market were to suffer May 8’s loss every single trading day for 10 years, the combined loss would still be less than 1.5%.

The good news is that the S&P 500 closed at another all-time high today of 5,321.41. The index is now up 11.56% for the year. The S&P 500 hasn’t had a daily loss of more than 0.25% since May 1. The Wall Street adage to “sell in May and go away” isn’t holding up well this year.

The market has been helped in recent weeks by an earnings season that was better than expected. We nearly have all the numbers for Q1 and the S&P 500 posted Q1 earnings growth of 5.36%. One month ago, Wall Street had been expecting growth of just 0.38%. The market beat very low expectations.

There’s growing concern over exactly where the Federal Reserve stands. In fact, I think it’s possible we may see the Fed split into two camps in the coming months.

Earlier today, Fed Governor Christopher Waller gave a speech to the Peterson Institute for International Economics in Washington. This is noteworthy because Waller has gained a reputation as one of the most influential Fed members, perhaps second only to Jerome Powell. He’s also seen as one of the more hawkish members of the FOMC.

In his remarks, Waller noted that inflation is indeed slowing down and, for the time being, no more rate hikes are needed. However, Waller said that he wants to see more solid data before he’s convinced that the Fed should start cutting rates. This view could be gaining strength within the Fed. It seems to be a bit odd to call for rate cuts as the stock market is rallying and inflation is above the Fed’s own target.

Waller conceded that some recent economic reports have been weak, such as retail sales and manufacturing data. Higher rates take some time to work, but they’re clearly having an effect. Waller also said that there are signs that the labor market is loosening.

Specifically, Waller said, “in the absence of a significant weakening in the labor market, I need to see several more months of good inflation data before I would be comfortable supporting an easing in the stance of monetary policy.” That’s clearly different from what Powell has been saying.

Waller said that the recent inflation report was a pleasant surprise, but it wasn’t enough to alter his view. The next jobs report will be out on June 7. For now, Wall Street still sees the Fed cutting rates in September, but if Waller’s view gains strength, those rate cuts could be off the table.

Silver: The Poor Man’s Gold

Last month, William Herbert Hunt passed away at the age of 95. Forbes estimated his net worth at $5.3 billion.

I mention Mr. Hunt’s passing not only because he was a man of great wealth but also because he was involved in one of the most spectacular investment schemes in recent history. Forty-five years ago, Mr. Hunt and his brother, Nelson Bunker Hunt, tried to corner the world silver market.

The scheme failed and the Hunts lost billions. In two months, the Hunts’ silver position, including futures, fell from $7 billion to negative $1.7 billion, or as Nelson Bunker put it, “A billion dollars ain’t what it used to be.” Tell me about it. In 1990, Herbert Hunt filed for bankruptcy.

Silver, often called “the poor man’s gold,” has rallied impressively in recent weeks. It’s currently trading around $32 per ounce. That’s up from $22 per ounce less than three months ago. Buying silver is like buying gold but even more so. Silver is almost like a natural 2X or 3X gold ETF.

Yet even after this rally, silver is still going for well below its Hunt-induced peak from 45 years ago. At its height, silver breached $50 per ounce.

Gold now trades at 75 times silver. During the early part of Covid, the Gold/Silver ratio reached 125. The Gold/Silver ratio has been an important ratio through history. Way back in antiquity, Plato mentioned that the ratio was 12-to-1.

In 1792, the U.S. Congress, at the advice of Alexander Hamilton, passed the Coinage Act of 1792. This was the government’s first attempt at price-fixing (and it wasn’t the last). In other words, Hamilton pegged the Gold/Silver ratio at 15. He wasn’t quite right and in 1834, Congress had to bump it up to 16.

Here’s the Gold/Silver ratio since 1990:

When the Hunts launched their plan, silver was around $6 per ounce. By early 1980, it rose to $50 per ounce. Time Magazine estimated the Hunts made between $2 billion and $4 billion in just nine months. To pull this off, they had to borrow zillions of dollars. At one point, it was estimated that they held one-third of the world’s silver. Tiffany took out a full-page article to denounce them.

The Hunt brothers were the sons of the legendary oilman, Haroldson Lafayette “H.L” Hunt, Jr. Hunt the senior was one of those people who’s called eccentric, but if he’d had less money, he probably would have been called something else.

To give you an idea, H.L. Hunt wrote a novel outlining his ideas for a utopia called Alpaca. I recall one person calling it 1984, but Big Brother is the good guy. After he died, the Hunts learned that their father had two other families.

Another brother was Lamar Hunt who was one of the most influential people in the development of modern football. He helped start the AFL and owned the Kansas City Chiefs. He was the person who came up with the name “Super Bowl.” Each year, the winner of the AFC title game is awarded the Lamar Hunt trophy in his honor.

The Hunt brothers were convinced that the Establishment was out to crush them, and they were right. The exchange changed the margin requirement which forced the brothers to put up much more collateral. They soon faced a $100 million margin call.

On March 27, 1980, the bottom fell out of the silver market. This is now known as “Silver Thursday.” The Hunts had to put up more money, but they couldn’t reach their margin requirement. The government was worried that Wall Street banks were so much in debt to the Hunts that if the Hunts went under, so would the banks. A silver panic could start a banking panic. With a margin call, you either put up more money or sell. There is no third option. Eventually, a consortium of banks offered a $1 billion line of credit to keep the banking system going.

The Hunts were wiped out. The brothers eventually become the models for brothers Randolph and Mortimer Duke in the movie Trading Places.

Hunt’s son Bruce said of his father, “Yeah, we took some hits. But his whole deal was: That’s the past. Let’s look forward. Let’s go back to what we do.”

That’s all for now. I’ll have more for you in the next issue of CWS Market Review.

– Eddy

Posted by on May 21st, 2024 at 6:34 pm


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.