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Weekly Memorandum 5/4/2020

The pre-market is rather quiet this Monday morning. Even so, equities pulled back from their highs last week, and finished on Friday below where they began on Monday. Such price action is typically construed as bearish, but after experiencing a ~35% rally off the March lows, equities are due for some rest. Last week's column stated, "...calls for a "retest of the lows" seems to be the position of a significant majority in the market. Coupled with the Fed's liquidity injections, these have been the main catalysts to drive the market higher. We definitely aren't out of the woods yet, but the longer we rally, the less likely a retest of the lows becomes." The market could be up to face this test now-- we need to see a higher-low at some point soon if this rally is going to mean anything.

Commodity markets and bond markets were fairly stable last week too. Crude oil didn't go negative, and it actually put in a positive week. The Fed continues to be all-in on keeping rates low and liquidity available to markets, so one can't help but wonder if this will continue to contribute to the economy's deflationary pressures. Keep in mind that bailing everyone out all the time does not allow improperly allocated capital to be eradicated. It simply stays "on the books" as an underperformer or distressed loan. Eventually, this will all come to an end, but until that day comes, this is the economic environment in which we must operate.

Gold and silver markets also pulled back last week. Gold continues to consolidate around multi-year highs while silver struggles. If this precious metal rally is real, silver will eventually catch up. When it does, its gains may be spectacular. We are also monitoring the cryptocurrency sector very closely. We recently published the latest edition of the Mercator Crypto Report, where we analyze Bitcoin, Ethereum, and Litecoin. While the coins themselves may not mean much, the blockchain technology is here to stay, and for now, the feds are letting these cryptos compete with each other, so close attention is warranted.

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