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The most important charts and themes in markets and investing…
1) End of Historic Uptrend and Return of Risk
The S&P 500 closed below its 50-day moving average last week for the first time since April 30, ending its 5th longest uptrend since 1950 at 198 days.
Here’s what happened after the end of the longest uptrend since 1950…
What you will see in that table is that there is no signal there. After the end of long uptrends in the past, sometimes the market bounces back with gains the following year and other times the market will continue to weaken. There is no way to predict what will happen this time.
What we can say is that there is a high probability of a return to volatility and risks that have not occurred over the past seven months. A 40+% rally from the April lows is very smooth progress without a 5% pullback.
But last week, we saw a return to normalcy with the S&P 500 down 5.8% from its October peak. This is the 31st correction >5% since the March 2009 low. Each piece of news came with a scary headline. Each one felt like the end of the world. But the world never ends and the market eventually recovers and reaches new highs.
The S&P 500 fell 1.6% last Thursday, marking its 27th daily decline in 2025 with a loss of >1%. This is not unusual – on average every year since 1928 there have been 29 major declines. Downside volatility is the price of entry for investors – without it, there would be no reward.
2) 50 year mortgage?
That’s what some in the Federal government are now proposing.
Why? Because we have the most unaffordable housing market in history.
But does this actually improve affordability?
Impossible.
Why? Because no bank will issue such a loan without a government guarantee. So you artificially increase demand, which in turn will (all things remaining equal) increase prices.
What causes lack of affordability?
It is precisely this type of policy, the artificial demands of the Federal Reserve (cutting interest rates to 0%, buying trillions of mortgage bonds, printing money, etc.) and the Federal Government (deficit spending, doubling of the national debt in the last decade, increasing power of Fannie/Freddie, etc.).
So the main cause of the problem is proposed as the solution?
Correct. And more importantly, a 50-year mortgage will yield more than double the amount of interest paid compared to a 30-year mortgage. And only 5% of payments in the first 10 years goes to principal and 95% to interest. Doesn’t sound like a panacea to me.
3) What Makes Inflation Soar Again?
Easy.
Just send $2,000 “rate dividend” checks to all Americans.
Why would that increase inflation?
Because there are no surplus Federal funds sitting in accounts waiting to be sent. We currently have a $2 trillion deficit that would increase if we took money from the revenue side (tariffs) and moved it to the spending side (stimulus checks).
This means too much money chasing too few goods, and the end result is higher prices.
Sound familiar?
It should. We did this three separate times in 2020-2021, and what followed was the highest inflation we’ve seen in 40 years (9.1% CPI).
4) Loosening Addiction
All it takes is a 5% pullback in the S&P 500 to move the downside protection team.
After dovish comments from NY Fed President John Williams, the odds of a rate cut in December jumped to over 70%, up from 40% last week.
This much is clear: the stock market is addicted to easy money and the Fed is a willing supplier.
With the current inflation (4%/year for the last 5 years), the Fed should not even think about lowering interest rates. But they lost credibility as inflation warriors several years ago when they dismissed the biggest inflation spike since the early 1980s as “temporary.”
5) Increased Delinquency
12.4% of credit card balances in the US are now more than 90 days past due, the highest we’ve seen since 2011.
6.7% of subprime auto borrowers are now at least 60 days delinquent, which is a historic high.
6) Know What You Have and Why You Have It
Bitcoin is down 1% over the past year while MicroStrategy’s Bitcoin Treasury ($MSTR) is down 63%.
How could that happen?
A year ago during the post-election crypto mania, MicroStrategy shares were trading at a market cap that was more than 3x the value of its underlying Bitcoin holdings.
And last week during the crypto correction, his market value fell slightly below the value of his Bitcoin holdings.
7) Physical/Digital Gold Divergence
Gold (+55%) was the best performing major asset in 2025 while Bitcoin (-9%) is now the worst. This is something we have never seen before in any calendar year (as opposed to 2013).
Gold has now outperformed Bitcoin by 19% since the inception of the first Bitcoin ETF in January 2024.
How could this happen?
Bitcoin is now down about 36% from its all-time high of $126,300 in early October. That’s the biggest correction from its all-time high since 2022. Is this unusual volatility for Bitcoin? Absolutely not. We have seen similar or larger withdrawals every year.
8) Some Interesting Statistics…
a) The US National Debt has now increased by more than $2 trillion since the Debt Limit was raised in July. The Federal Government continues to borrow from our future to spend money like drunken sailors today.
b) 45% of fund managers surveyed by Bank of America in November said an “AI bubble” was the biggest risk to markets, up from just 11% in September. More than half of investors said they think AI stocks are already in a bubble.
c) The office vacancy rate in the US has increased to 20.7%, the highest level in history. Related: The delinquency rate on CMBS loans for office properties has risen to 11.8%, the highest ever.
d) In the first 8 months of 2025, the US trade deficit is 25% higher than in the first 8 months of 2024.
e) As much as 32% of household wealth is now held by Americans aged 70 and over.
And that’s all for this week. Thanks for reading!
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Disclaimer: All information provided is for educational purposes only and does not constitute investment, legal or tax advice, or an offer to buy or sell any security. Read our full disclosure here.
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