Quick Update on the Latest

We're at the moment consumed with year-end rotations, etc., but I wanted to just pop in with a super quick update.

Quote of the Day: Pragmatism Needed!!

Chatting with a client this morning I found myself metaphorically using the weather to describe why we're rotating to a new "core allocation" that we believe to be more resilient during turbulent financial conditions than was our previous mix of assets. I said that my job is akin to that of a weatherman; to, in essence, determine whether it’s smart to venture outside without, say, a jacket or a good strong umbrella. You know what I mean...

This Week's Message: The Thing Is

Hearing lots of chatter from the few current bears worth listening to about how sentiment indicators are screaming over-enthusiasm, how valuations are stretched, how we're experiencing a classic "blow off top", how "this is a terrible time to put money to work" and so on. And, yep, I sympathize, at least in terms of sentiment, as our own "Fear and Greed Index" confirms that this market is indeed over-ripe for a fall.

Bonus Quote of the Day

Here's my third Mandelbrot quote in a row, so you know what I'm currently reading. I must say, The Misbehavior of Markets; A Fractal View of Financial Turbulence is excellent!

Quote of the Day: Unfathomably Complicated

As I take passing note of the war of the pundits (and the everyday squawkers) -- the bulls versus the bears -- I am forever amused (please pardon my condescension) by the sheer simplicity of their respective arguments.

Global Economy Has Issues!

As I mentioned recently, we've developed our own macro scoring system for the Eurozone and 19 additional countries (soon to be 22). 

"Watch What JP Morgan Does"

I've written a bit about, and mentioned in a recent video, the massive challenge the Fed is facing in the repo market; the market where financial institutions take care of their short-term cash needs. I.e., for a variety of reasons, the Fed has had to recently, and aggressively, inject hundreds of billions into what is essentially the plumbing of the financial system -- to keep its pipes from clogging. Hmm....

Entering 2020

Right about now, each year, is when I settle in to pen a letter with "year-end" in its title. The past several turned out to be so voluminous that I broke them into several parts, with the hope that by delivering them in smaller, more digestible bites, I'd capture, and keep the attention of most, if not all, of our clients. 

The Last Eighth

A friend just emailed me asking for a little clarity on the "last eighth" quote from an earlier blog post. I think my answer is worth sharing:

Data of the Day

The final reading of third-quarter GDP confirms our present assessment of overall conditions; consumption remains strong, while capital investment (business expansion), and corporate profits are on the decline:

Against The Grain... then and now...

Okay, so I want to be very careful with this one, because I am absolutely not making a short-term market call! What I am saying is that exactly a year ago, as the market was careening lower amid the worst December since 1931, we remained steadfast in our then growthy (notably bullish) posture, despite staring into what turned out to be the steepest correction of this entire bull market.

Here are highlights from a few last-December blog posts:

Quote of the Day: A Tale of Two Economies

This week, Fedex reported quarterly earnings that, to put it mildly, were nothing to write home about.

CEO Fred Smith, explaining the what's and the whys, pretty much echoed what has been our messaging herein since late-summer:

This Week's Message: Our F&G Index Is Running Hot!

In a yesterday blog post I highlighted a Bloomberg interview with the head of a venture capital firm that got me reminiscing on personal observations of bubbles past. Having cut my teeth back in the 80s, I've had the good fortune (sincerely) of being professionally intimate with the '87 crash, and every recession, every bubble, every bursting, every bear market, every currency crisis, and every etcetera since.

Bonus Quote of the Day: Look For More Stimulus From China

Just read through the summary commentaries on China from folks the article called "the world's most prominent China watchers". Much of the commentary jibes with ours; that China has major structural issues and that, as I suggested in today's (client-only) video, there's very likely some market-friendly stimulus on its way -- that'll likely do little for the real economy. I.e., the late-cycle stuff we're seeing virtually everywhere.

Our New Core Allocation (video)

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Quotes of the Day: Utterly Concerning

Quotes like these -- the first a line from the teaser for the program referenced below -- tend not to age well:

Chart of the Day: Somebody's Betting On A Big Drop...

Now, don't you go chasing this rally! Of course if you're a client we won't let ya, but if you're a hitchhiker on the blog (it's here for anyone who's stumbled onto it), we can't stop ya, but you should think twice before hopping onto the year-end FOMO (fear of missing out) express.

Client-Specific Video Presentation: A Look At General Conditions and What Lies Beneath

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Momentum, Etc., Favors the Bulls -- And -- Be Careful What You Ask For...

Last week's (late-week) rally was an easy call, as a pro-Brexit outcome to the UK election was a given, and because the stock market ramifications of allowing the scheduled tariff hike to occur this weekend were ominous. 

Quote of the Day: The "Bond King" Says We Were Late In Getting Defensive

According to Jeffrey Gundlach, the founder and manager of DoubleLine Capital, the mammoth $150 billion investment firm, we were actually late in beginning to play defense this summer.

Quote of the Day: Speak No Evil

Just finished John Kenneth Galbraith's "The Great Crash 1929", and, no (NO!), my resoundingly cautious tone of the past several months should not be construed as me anticipating the likes of the 1929 episode (remember, I'm only responding to present general conditions). That said, or, as George Santanaya once said (words to the effect); "Those Who Do Not Learn From History Are Doomed To Repeat It."

Quick Note on This Week's Action

On Monday I suggested that a rally was in the near-term offing; citing pending positive trade news as one of a few potential catalysts.

This Week's Message: The Crowd

Two big rallies this morning, the first one charted below should come as no surprise; recall Monday's blog post with "Strong Odds Of A Near-Term Rally" in the title.

For Better, For Worse

If you want to feel better about the present state of general conditions, take a look at our charts below on small business optimism, hiring and capital expenditure plans (which happen to be components in our macro index):  latest move (reported yesterday) circled in green...

Serious Quote of the Day: Morgan Stanley Is Seeing What We're Seeing

As you've noticed, we've remained very guarded, in words and in actions, during the latest leg of this longest-ever bull market.

While I hinted yesterday that we'll continue to closely monitor labor conditions in the industrial space, looks like we're not alone in our concerns even in our own space.

Chart and Quote of the Day: What History (of the unemployment rate) Ultimately Portends

Again, I'm liking last Friday's employment numbers, plus a few other data points have improved lately as well; our macro index went from -8.14 to -2.30 over the past week. Although I think some bullish pundits who've declared last Friday's unemployment number (a lagging indicator by the way) as proof positive that the bears are off track are either overlooking or are unfamiliar with history.

Definitely Strong Odds Of A Near-Term Rally (except for what the VIX says this morning)

With the Fed desperate to not upset markets these days (they meet this week), with the likelihood of a Brexit-friendly outcome to this Thursday's UK election, with the strong odds that the U.S. is not going to allow the scheduled tariff increase to take effect on 12/15, and with this morning's rumor that USMCA (US, Mexico, Canada trade agreement) is about to pass Congress you'd think the market would be screaming higher this morning.

Understanding Your Account Statement: Specifically The Effect of the Options Hedge

Late summer of this year, after 10+ years of riding what is now history's longest bull market, our assessment of general conditions deteriorated to the point where we placed higher (though not overwhelming) odds of a bear market occurring over the coming 12 months than we had at any time since the beginning of the 2008 recession. 

This Week's Message: Debt, Jobs, Trade, Stocks and Our Core Strategy Going Forward (video)

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Beyond Santa

Make no mistake -- well, let's say there's very high odds that -- if the tariff increase on Chinese imports occurs as scheduled on December 15th, Christmas will be ruined for anybody counting on a Santa Claus rally in stocks. Therefore, given the amazing propensity for the powers that be to respond to the slightest hint of stock market stress -- and the fact that they have to agree with the above -- I place high odds on said tariff increase not occurring as scheduled. 

Bonus Quote of the Day: Feeling Like We're In The 11th Round

Jim Bianco, Macro Strategist with Bianco Research, is one of today's more sought after articulators  of the state of global general conditions. 

Today, RealVision posted an interview featuring Jim subtitled "How the Fed Effects Equities".

The quote below from the interview essentially echoes my message in yesterday's must-watch video: I.e., as recently as last year at this time our macro assessment had it that the economy and, thus, the stock market could withstand what ultimately morphed into a 20% correction that ran from early October to Christmas Eve. And that, presently, however, our assessment is notably less sanguine:

Quotes of the Day: Don't Be Silly!

Well, no surprises here; equity index futures are rallying pre-market on the following U.S./China trade news:

Market and Macro Commentary (video)

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It Would Be Crazy To.......

So stocks are selling off a bit this morning, following through a bit on Friday's selloff. Headlines suggest that it's because the President tweeted that the U.S. is going to tariff Brazilian and Argentinian steel imports, at least that was excuse number 1; excuse number 2 followed with another disappointing manufacturing ISM print.

Please, Keep Working That Noggin!

This one's off-topic, although long-time clients (friends) and I do have personal conversations about lifestyle, longevity, cognitive stamina, and so on, as they approach, and enter, retirement.

Charts of the Day: Preserving Your Wealth

If, being our client, you're remotely concerned about being hedged (muting gains) as the market continues to melt higher, the following might have you feeling comforted, given the risks as we presently see them.

You're In Good Company!

A friend intimated to me last week that the sound of my blogs of late make it seem like the bottom (of the stock market) is going to fall out any minute, or words to that effect.

Quick Pre-Holiday Update

The stock market keeps on rolling; although not quite recapturing the trend line it dipped below last week. That said, I think we can make the dashed line below (see chart) the new uptrend line for now. The negative momentum divergence (panel 2), and present overboughtness (panel 3) make this a still dangerous-looking short-term setup:

Bonus Quote of the Day

Many times over the years, herein and in video commentaries, we've touched on the signals inherent in overall volume (total shares trading hands) relative to price action. 

Quotes of the Day: Timeless -- And Very Timely -- Wisdom!

The following excerpts from the greatest investing book ever written, Reminiscences of a Stock Operator, speaks volumes about where we find ourselves today. Clients will know exactly what I mean:

This Week's Message: Carefully Rising To The Challenge

I gotta hand it to the bulls, the equity market (on the surface* [see supplemental charts below]) remains the definition of resilient! Of course, as we've been stating from the moment we became guarded, it would/will be positive trade news that keeps the market afloat.

How To Crunch The Jobs Data

As we've stated herein, we're paying very close attention to the U.S. employment picture, as it's our view that a rolling over of the labor market will be the straw that ultimately breaks the back of the economic/stock market bull camel; now on its longest-ever journey.

A Contrarian's Dream!

I totally get why traders are bullish right here, but man it's getting awfully crowded on the bull's side of the boat!

One of our weekly to-dos is to track futures speculators' positioning among various currencies, commodities and stock indices.

Headline of the Day: The Fed Sees Trouble Brewing

In a review meeting yesterday my astute client stated that he agreed with our assessment of conditions and was happy to play defense for the time being, but struggled with why the market continues to hold up.

Quote of the Day: Watching the Labor Market

Macro strategist Julian Brigden's summation below jibes with what I've been expressing herein of late: That once the labor market begins to buckle (whenever that occurs), this longest-ever ball game (expansion/bull market) is likely over:   emphasis mine...

Myopic traders on edge!

Here's our 1-minute S&P 500 chart this morning:

This Week's Message: Uneasy...

I'm going to let you off easy with this week's message; I mean in terms of length, the actual message itself is not what I'd call "easy" -- I'd actually call it a somewhat "uneasy" message.

Bonus Chart of the Day: Like It's 1999

While articulating my #2 reason why it might be dumb to own stocks if you have a one-year time horizon in this morning's video I suggested that "valuations are not justified by present fundamentals."

Charts of the Day: Labor Market Warning Signs

I've been mentioning in client meetings and on video commentaries herein that we expect to develop a firmer conviction as to the direction of the next 'big' market move over the next few months; our eyes being firmly focused on the labor market.

Stuff Impacting Stocks; Now and Further Out (video)

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Latest Log Entry: Why To Own Stocks Right Here, And Why Not To

The pros and cons below for the "right this minute" scenario favor the bulls. As for over the course of the next year, well -- at this juncture -- not as much...

11/17/19 Sunday

List of reasons why it is smart to own stocks right this minute:

The Fed On What Lies Beneath -- OR-- Who Hires Whom?

Last month I devoted several blog posts to the recently released International Monetary Fund's (IMF) Global Financial Stability Report. As I expressed, the report confirmed virtually all of my concerns over what lies beneath; i.e., what will surface during the next economic contraction.

Chart of the Day: No Explaining Away The Latest Weakness!

While we've previously addressed the Q1ish anomaly in the GDP numbers, that vividly displays (white circles) in the Atlanta Fed's GDP Nowcast graph below, per the red circles (all empty except the last [today]), a 0.31% reading at this time of year is something that we absolutely cannot explain away as some glitch in the seasonal adjustments:   

click to enlarge...


This, folks, is what we're talking about, and it's what's showing up in our own macro index!

Question of the Day: Has the monetary tsunami restarted?

I share Citigroup's concerns:

We've been here before, and it didn't end well...

Yesterday's Log Entry: Acute FOMO

11/14/19 Thursday

The S&P continues to move further into all time high territory while sentiment has turned exceedingly bullish over the past month; our fear and greed index currently scores 100 (highest greed level). While this denotes very strong odds of a near-term pullback, seasonality, the belief that the U.S. and China are on the verge of striking a “phase one” deal, today’s news that the USMCA is likely to be ratified soon, the Fed’s accommodative stance and, way below the radar, the potential for the Fed to roll back banking regs to fix the present overnight funding issue could absolutely spark an immediate rally.

This Week's Message: The Jury's Still Out, But...

Just finished a long meeting with a good friend and client of, believe it or not, 32 years. I know, you're now thinking that I was like 7 years old when I started my career 😎. I have had the sincere pleasure, and honor, of working with my friend through the absolute litany of ups, downs, booms, busts, etc., over the past 3+ decades; an era when the market delivered just about anything one might imagine the market could, including the Greatest Recession Since the Great Depression.

On Market Timing

Just watched an interview with one of market history's most revered technicians, John Bollinger. His eponymous indicator, Bollinger Bands, is one of the most used technical tools across most (if not all) traded markets.

Video Commentary: Bear Markets, Timelines and General Conditions

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Headline and Quote of the Day

The S&P 500 is moving seriously further into all time high territory this morning -- thing is, nobody's seriously buying it (literally), at least not yet. Meaning there's virtually no volume; as I type about half the average number of shares have traded so far for this time of day.

Some Magical Thinking Going On In The Corporate Debt Market

In last Thursday's video I said the following, with regard to present under-the-surface risks compared to what we faced leading into the last "great recession":

Chart, and Quote, of the Day

This chart and accompanying stats, along with Friday's video commentary and last week's weekly message, adds to our presently defensive narrative:

Quote of the Day: It's What You Keep That Counts!

Respected author and currency expert Marc Chandler echoes much of what you've been reading herein the past few weeks:

Careful On The Slopes

IMA's CEO and Chief Investment Officer Vitaliy Katsenelson, in a recent Real Vision interview, offered up the perfect analogy for the market environment we in our view presently face:

Video Commentary: Quick Look At General Conditions

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Quote of the Day: Scariness In The Debt Market

In yesterday's video I mentioned the scariness of what we're seeing in the private equity space, in leveraged loans, and in collateralized loan obligations (CLOs).

This Week's Message: Greed In Markets Isn't Good If You're Bullish On Stocks -- Or -- Who's Swimming Naked?

Personal note: Chatting with Nick after the close this afternoon I found myself venting on behalf of anyone who might be exposed to this market on a short-term basis. I don't know that in my 35 years of doing what I do I've seen a more myopic, purely headline driven market. Of course the now-huge preponderance of algorithmic trading is (in terms of dimension and influence) a relatively (as in the past decade or so) new thing, and not to mention the social media platforms upon which traders become totally distracted -- and led through a veritable labyrinth of theories on everything from macro economics to day trading -- makes for utter short-term confusion in markets; particularly today, with its intense political and geopolitical backdrop.

Video Commentary: Legitimate Trade Optimism, What Lies Beneath, And How Our Hedge Plays Out

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Bonus Quote of the Day

This (from NY Fed President John Williams this morning) is precisely what I'm talking about (when I'm talking about bubbles):

Quote of the Day: The Sooner the Better!

I wrote the following on October 30th:

Quote of the Day: China Now Playing Hardball

All of the promising trade rhetoric coming from President Trump and company of late appears to have given Xi the green light to go for the jugular:  emphasis mine...

This Morning's Log Entry

11/5/19 Tuesday

As I suggested in Sunday's blog post, given the latest momentum, historical precedent (past years like 2019), seasonality, odds of soft Brexit and huge incentive to ink a “Phase 1” U.S./China trade deal, the year-end (return, as opposed to risk/return) setup looks good for equities. Potential problem being, sentiment is ramping up notably, and — given the abysmal predictive track record of the short-term consensus — that’s a contrarian indicator. 

Bonus Quote of the Day

I mentioned the prospects for the following in this morning's video commentary. If I'm right about the White House's present stock market-centricity (a no-deal "phase 1" would play pure havoc with markets), China may very well get what it's after; despite the political push back the Administration is bound to receive from both sides of the aisle:

Quote of the Day: Feels Familiar

The following reply to hedge fund consultant Thomas Thornton's blurb this morning (about the market rallying on trade rhetoric) echoes our latest video message:

Video Commentary: Wind Machines Set On High

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Quote of the Day: Insiders Fading Recent Rallies

Considering seasonality (November and December tend to be very good months for stocks), Friday's better than expected jobs number, the Fed's recent rate cut and its dovish cooing, and the market's propensity to trade higher on anything suggesting trade war(s) are not due to escalate (the White House -- as the latest tweets, etc., suggest -- clearly gets that message), a strong year-end for stocks is making a lot of sense. Although, I have to say, considering the consensus pessimism coming into what turned out to be a very good October (markets love to disappoint the consensus), perhaps a strong year-end makes a little too much sense.

Quote of the Day

Here's a bit more from the IMF's latest Global Financial Stability Report that speaks to our concerns over the present level of stock and bond prices relative to the underlying fundamentals (i.e., valuations):

Market Commentary (video)

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Quote of the Day

"There's much more to the game of stock speculation than to play for fluctuations of a few points. 

It takes a man a long time to learn all the lessons of all his mistakes. They say there are two sides to everything, but there is only one side to the stock market; and it is not the bull side or the bear side, but the right side. It took me longer to get that general principal fixed firmly in my mind than it did most of the more technical phases of the game of stock speculation."

Jesse Livermore 

This Week's Message: Absolutely, There is A Bubble

Yes, there is a bubble out there! How do I know that? Well, think about it; if indeed the economy is as good as even Fed chair Powell suggested yesterday, why on Earth would they even dream of lowering interest rates, and why would they commit to not raising them till they see the whites of inflation's eyes virtually pressing against the ends of their noses, if not the back of its head as it races right past them? There has to be something that has the Fed exceedingly concerned if they feel they have to stimulate an already humming economy.

Quick Fed-Meeting Followup and Bonus Quote of the Day

The market, after a bit of hemming and hawing, traded higher on this "Fed day". You might think it was the quarter-point rate cut that did the trick, but of course we knew that was coming, and the market actually traded lower on the announcement itself. What traders saw as a green light to buy was Powell's comment that there'll be no rate increases until inflation rises "significantly".

Quote of the Day

I agree with Kevin Muir, strategist with East West Investment Management, in a recent Real Vision interview with regard to the real-world efficacy of yet more monetary stimulus (which is on its way a little later today):

Prudence Demands

While I'll no doubt have more to offer by way of commentary on this morning's Q3 GDP report, in a nutshell 1.9% growth is better than the 1.6% economists had forecast, and we can thank ourselves, us consumers, for keeping the economy afloat (although Uncle Sam did pitch in as well):

Quote of the Day

The S&P 500 just dropped 8 pts in a matter of seconds on the following:

Chart of the Day

Consumers are beginning to fret a bit about the future (recessions in grey):

Just another friendly reminder of why we're treading cautiously for now on our clients' behalf.

Remaining Careful, Despite Positive Near-Term Prospects

Here's the close to my latest entry to our internal market log:

"While, again, I see a good chance that stocks trade higher in the near-term, the market faces somewhat of a double-edged-sword setup. Should, as some economists expect, the headline data begin to improve, traders will fret over the Fed becoming therefore less accommodative. Should, on the other hand, the data sour even more rapidly, traders will fret that the Fed is behind the curve and, thus, won’t be able to skirt a near-term recession.

Market Update (video)

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Quote of the Day: Be Very Careful What You Ask For!

As we've been suggesting for months, the efficacy of Fed rate cuts at this juncture, in our candid view, is virtually nil; except for their potential positive impact on asset prices (stocks in particular) and the -- albeit short-lived -- igniting of animal spirits (increased economic activity) that might produce. 

Double-Trouble (potentially) In The Auto Loan Market

There are two troubling aspects to the following snippets from this morning's Bloomberg article titled "Subprime Auto Giant's Loans Souring at Fastest Clip Since 2008".

Headline of the Day

Stocks just caught a nice flurry of buying on the following headline, taking the S&P 500 to within a virtual tick of its all time high:

Today's Log Entry: You'd Think New Highs Right Here

10/24/19 Thursday

Despite the suspect state of general conditions, I’m frankly surprised that the equity market isn’t screaming higher right here. The Fed’s been essentially tamed, earnings are coming in better than (albeit reduced) expectations, a soft Brexit, whenever it happens, is a done deal and all indications are that there’ll be a “phase 1” (fundamentally meaningless, but, then again, fundamentals are not remotely driving the equity market currently) trade deal signed come 11/29.

This Week's Message: Being Responsible -- And Some Additions To My "Charts That Trouble Me" File

Many long-time clients have mentioned to me recently that it's been, well, a long time since they've heard me sound so bearish on the market. While I completely understand where they're coming from -- and while I know the word has left my lips during some client review meetings -- I don't know that "bearish", as in committed to the notion that the market has nowhere to go but down from here, completely captures my current thinking. 

Taking Outsized Risks for Undersized Rewards!

Typically we'd view a low yield spread between high yield (junk) bonds and high quality (investment grade) bonds as a positive sign with regard to present general conditions. Of course context is everything!

Heightened Global Risk - OR - Treading Cautiously Amid The Likelihood Of New Highs

Bloomberg opinion editors just penned a piece titled "The World Economy Is Stumbling Toward Disaster". And while the title is a bit much, I do sympathize with much of what concerns them.

Here are a few snippets, this will sound familiar to regular readers:   emphasis mine...

Quote of the Day

Hold this quote close as you consider the messaging herein of late regarding the under-the-surface pressures we're seeing, particularly in the corporate debt market, and as the equity market meanders its way further into history's longest expansion:

Market Update (video)

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Quote of the Day: More Prudence Justification

As I intimated yesterday, the IMF's latest Global Financial Stability Report is a robust, deep dive into what lies beneath the surface of the world economy. And, alas, as I also suggested, it more than justifies our currently guarded approach to the equity markets.

Quotes of the Day: Justifies Prudence

I'm currently poring over the just-released IMF Global Financial Stability Report, and the deeper I go the more confident I am that hedging our portfolios right here is the definition of prudence.

Chart of the Day: One Really Good Reading, Amid Otherwise Uninspiring Data

On balance, today's data deluge wasn't much to write home about: Mortgage purchase apps were down 4% week-on-week, retail sales missed economists' estimates, business inventories slowed, the Fed's Beige Book (an anecdotal report comprised of inputs from each of the 12 Federal Reserve districts released 2 weeks before each policy meeting) characterized economic activity as "slight to modest", and the Treasury International Capital Report showed foreign investors selling long-term U.S. securities in a big way in August (net -$41.1 billion).

Quote of the Day: This Is A Big Deal Folks!

Clients and regular video blog viewers have heard me say that, in a macro sense, our job here at PWA is to first assess probabilities in terms of the direction of the next 'big' move in financial markets and the economy, and, second, to maintain a firm handle on what lies beneath the surface in order to anticipate the depth and the length of that next big move.

This Week's Message: The Bullish Case For Stocks, How To View It, And Whether We Should Play It...

Listening to Bloomberg Asia last evening I caught a segment where Bloomberg’s reporter, after referencing the IMFs latest downgrade of global growth (they estimate that “90% of the world will experience a growth slowdown this year”) and the Brookings Institute characterizing present global general conditions as a “synchronized stagnation”, accurately listed the plethora of global headwinds that he suggests virtually have to “entrench a period of gloom”.

Newsflash of the Day

While finishing this week's message (coming to you earlier this week) I noted the trading action that occurs on headlines and tweets. While typing, lo and behold, I noticed the S&P 500 (which was trading notably lower on the morning) shooting higher on the one-minute chart.

Quote of the Day

Not to continue to sound so dang gloomy amid a bull market that is now threatening new highs, but it's the kind of stuff referenced below bubbling under the surface, along with an on-balance waning macro backdrop, that is so dang troubling!

Market Commentary (video)

I do more talking than charting in this morning's video; touching on Brexit, China, corporate earnings, corporate debt and -- from the 6:18 point forward -- our thinking with regard to client portfolios heading into next year.


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Chart of the Day: Freight Data Not Good!

Cass Information Systems highly-touted (as a leading economic indicator) freight index report was just released for September. 

Here's why it's so "highly-touted":

Quotes of the Day: "A Cacophony Of Noise"

In Friday's post I suggested that nothing consequential occurred last week with regard to trade negotiations with China. In their morning message Bespoke Investment Group pretty well spells it out: 

"Together, We Can Make This World A Beautiful World"

Our message this week will not brighten your day, but something occurred this morning that will:

This Week's Message: The Problem With The Central-Banks-Can-Save-The-Day-Narrative...

This week's message is an excerpt from my latest entry to our firm's internal market log, followed by the contents of a file I created a mere two weeks ago titled "Charts That Trouble Me".

Market Update (video)

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Bonus Quote of the Day

The following, from Greenspan’s 2014 book, speaks (screams) to what we’re presently experiencing!

Quote of the Day: Looking past the end of traders' noses...

This, from Evercore's head of China research, is essentially what the market's rallying on this morning:

Pre-Market Update (video)

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Chart of the Day

The market's in rally mode this morning on news that China, despite the hits it's taken this week from the U.S. (blacklisted companies, restricted visas and threat of capital controls), is coming tomorrow with a "limited" offer on trade.

Pre-Market Update (video)

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Equity Market Update (video)

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Yeah, but...

Last Friday I penned a quick note titled "Wow!! But...", and poured two glasses of cold water on the day's big rally.

Specifically: 1) the fact that bonds rallied hard as well, and 2) that, for stocks, it occurred on notably below-average volume.

Well, today, after trading higher for better than half the session, the S&P gave up the ghost and closed about 20 points off of its intraday high. While a roughly .7% decline isn't huge (it's the equivalent of about 185 Dow points), it's still nonetheless notable -- just not enough to put Wow!! in today's title.

As for its importance, well, frankly, there wasn't any. For today's late-day selloff to be meaningful, in terms of signaling something pernicious in the immediate underlying conditions, you'd need to see bonds rally; as frightened money would've flown to safety. Didn't happen (didn't happen in safe-haven gold either, by the way).

Here I added today to the chart I showed last time (bonds green, stocks white):


Bonds and stocks now moving together for three days running. 

Today's explanation? Well, if I hadn't seen any news I'd say the most likely excuse would be that a voting Fed member must've said that the economy's good and that they can go easy on rate cuts, or maybe a good data point or two was reported (i.e., in both cases, it would mean good news is bad news [and the Fed's gonna get busy], which is clearly what explained the rally last Thursday and Friday), but we didn't get either. So who knows? Maybe it was indeed simply meaningless action.

Well, just like last Friday, that's the message today's volume action sent. I.e., volume today was, once again, notably below average (suggesting that today was more about reluctant buyers than it was raging sellers):


Stay tuned... much more to come this week -- and it's indeed likely to turn out to be at least near-term meaningful: Fed chair Powell gives a speech tomorrow, and China's trade negotiators will be in Washington Thursday and Friday... 

Quote of the Day

Bloomberg's macro model agrees with ours:

"Sell-side equity analysts’ 7.7% estimated earnings growth for the coming 12 months is way more bullish than the Bloomberg Intelligence macroeconomic model suggests it ought to be."

Quote of the Week: Chilling!

Amid optimism over next week's scheduled U.S./China trade talks, prospects for a more accommodative Fed, the impeachment noise, and a crazy volatile week for stocks, the following didn't receive nearly enough fanfare in my opinion. And, for me, frankly -- given the now-obvious (although we've been warning about this since early '18) nature of what has the U.S. economy threatening to catch down to much of the rest of the world -- is probably the most chilling of recent developments:

Wow!! But....

Wow! Really strong day today! But, while I hate playing the party pooper, well... there are a couple of buts.

This Week's Message: Our Base Case Remains Bearish (next big move), But Near-Term New Highs Are A Distinct Possibility

This week’s data was consistent with my current assessment of general conditions; an overall deteriorating macro setup, although not to the point where we can make the recession call – at least not in the U.S..

Today’s September jobs report came in below expectations and punctuated the overall slowing economic backdrop, but it could’ve definitely been worse.

Charts of the Day

Per this morning's video commentary, I was looking for a pop today. But I gotta tell ya, the fast-diminishing of today's rally I was seeing about 10 minutes before the close made a lot of sense to me. I mean what short-term trader would want to go long into tomorrow's before-the-open jobs report when the supporting data of late say it may not be good??

Market Update (video)

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A Silver Lining Maybe?

As you've noticed, I'm not presently constructive on stocks, but I'm forever open minded.

This Also Has Our Attention!

Here's my brief commentary from September 12th:

Quotes of the Day: This Has Our Attention!

Brief Market Update (video)

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It's Not Just Us!

A famous person complained this morning that the dismal outlook for U.S. manufacturing expressed in today's ISM report was all about the Fed allowing the dollar to rise to the point where "our manufacturers are being negatively affected".

Closer To The Point Of No Return

Oppenheimer Chief Strategist John Stoltzfus, on Bloomberg discussing this morning's disappointing (to put it mildly) release of the Institute for Supply Management (ISM) September Manufacturing Survey, says it's all about the trade war:

Quote of the Day

Yale economist, and renowned global thinker, Stephen Roach echoes our latest messaging herein:

This Morning's Log Entry: What Explains The Market's Resilience in Q3?

9/30/19 Monday

Despite all of the headwinds, although the S&P remains only marginally higher than it was all the way back to January ’18, the market held up remarkable well in Q3. Hmm....

Tech Sector Technicals Not So Good, And My Take On Friday's U.S./China News (video)

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This Week's Message: A Walk Through the Data

We just finished our weekly scoring of the PWA Macro Index and would like to show clients what we're seeing; which in the aggregate illustrates why, for the time being, we remain cautious.

Quote of the Day

With regard to the possibility of a near-term trade deal with China, I posed the following question (among others) in a post yesterday:

"Is the global economic damage already done sufficiently reparable to -- in the near-term -- stave off the next downturn?"

Here's from Daiwa's chief equity strategist last night:

Pre-Market Update (video)

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Bonus Quote of the Day

Sorry to seem so doom and gloomy of late, but we feel the need to keep clients abreast of what's bugging us while the market meanders around all time highs:

Quote (and related concerns) of the Day

Here's from Bloomberg macro strategist Cameron Crise this morning (China-related comments from the President [several times over] this morning -- and the resulting rally in stocks -- suggest he's onto something):

Pre-Market Update And An Important Dive Below The Surface (video)

In this morning's video commentary I make no mention of impeachment risk, of China's last-evening statement that the U.S. is going to have to remove a lot from their proposed trade deal to get it done or of the President's, therefore, conflicting statement this morning that a deal may be near; just the short-term technicals and, more importantly, some of the below-the-surface stuff that has us presently concerned:

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Bonus Quote of the Day: Ironically, America Laid These Foundations!

Also from Alan Greenspan's latest work:

"America laid the foundations of a liberal trading regime by slashing tariffs on dutiable imports from an average of 33 percent in 1944 to 13 percent just six years later. It also laid the foundations of global economic management with the creation of the International Monetary Fund and the World Bank at a conference at a hotel in Bretton Woods, New Hampshire, in July 1944. The General Agreement on Tariffs and Trade (later the World Trade Organization) followed in 1947. It laid the foundations of global political management with the creation of the United Nations in 1944–46.

Quote of the Day: Good Old Fashion Republican Wisdom

While I suspect that all of my readers will nod approvingly as they read the first paragraph below taken from Alan Greenspan's 2018 book Capitalism in America, I also suspect that many these days will struggle with the second; which, make no mistake, explains the U.S.'s preeminence every bit as much as the first:

Chart of the Day

As we've been reporting herein, the consumer remains the heavy-lifter for the U.S. economy, and, thus, we need to be very sensitive to any signals suggesting that maybe he/she's feeling a bit weak in the knees.

PMIs Confirm Our Concerns

As I continue to stress herein, our presently cautious stance stems from our assessment of conditions, both technically (the market/asset class trends) and fundamentally (from a macro economic perspective).

This week's global PMI (Purchasing Managers Index) releases essentially keep us (fundamentally) there.

Quote of the Day: Looming Stress

As you've noticed, we're not entirely constructive on the stock market these days. 

Brief Market Update, And A Look Inside The Tech Sector

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Last Evening's Log Entry

9/22/19 Sunday

Friday saw equities sell off right into the close on news that China’s trade negotiators cut their trip short and headed back to Beijing. It was curious that there was no immediate explanation from the White House designed to calm markets. In fact, earlier in the day a White House trade adviser suggested that if a deal doesn’t come soon that tariffs on Chinese imports could go to 50% or 100%, followed up a bit later by Trump saying that he wasn’t interested in a partial deal.

Headline of the Day.... and context...

Dow's down triple-digits on the following:

"CHINA DELEGATION CANCELS US FARM VISIT TO MONTANA - AGRICULTURE OFFICIALS TO RETURN TO CHINA SOONER THAN EXPECTED"

Yes, that's a near-term concern. The chart we featured earlier, however, is a longer-term, bigger, concern!

Bonus Quote of the Day!!!

I'm with Fed Bank of Boston President Eric Rosengren (he dissented yesterday) on the risks of cutting interest rates in a tight labor market/low interest rate environment.  emphasis mine...

Quote, And Chart, Of the Day

As the Nasdaq 100 futures one-minute chart (below) ticks along on the computer screen to my left this morning, I'm reminded of the following Jesse Livermore quote:

Bonus Quotes of The Day: Not The Tone We're Looking For!

Not the tone we're looking for:

Quote of the Day: Life Is Funny!

Couldn't help it!

And, c'mon, just laugh... we could use a little bipartisan humor these days...

This Week's Message: The Market Still Looks Heavy (video)

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The Latest Consumer vs Business Data Match Our Index

As we've been reporting of late, the consumer is in pretty good shape. In fact, he/she is doing virtually all of the heavily lifting on behalf of the economy these days.

No Need To "Further' Spike The Punch Bowl...

Didn't do a pre-market video this morning, as any short-term technical signals can easily be blown out when the Fed announces its interest rate decision at 11am (pdt), and when Chairman Powell makes his followup statement and fields questions from the media.

No Worries In Today's Data Releases

I wonder if the members of The Federal Open Market Committee (the Fed) were too preoccupied by their discussions over the data today (day one of their two-day policy meeting) to take note of today's data? 

If not -- if they indeed took a peak -- those who favor little or no tweaking (the hawks) had to have looked at their dovish counterparts (those clamoring for a .50% rate cut) and said "see what we mean!"

Today's Log Entry: Call It (the market's odds tomorrow) 50/50

9/17/19 Tuesday

Something very weird is going on with overnight repo rates!

Pre-Market Update and A Quick History Lesson On Fed Rate Cuts and The Stock Market (video)

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Today's Log Entry

9/16/19 Monday

Before the weekend attack on Saudi oil production I had odds at better than 50/50 that the Fed would sound a hawkish tone, while cutting 25 bps; upsetting equity markets, gold (currently trading on prospects for lower-yields, as opposed to Armageddon) and bonds in the process. However, given the palpable geopolitical uncertainty the weekend wrought, my best guess, as I type, is that the fed will tilt dovish, while still cutting 25 bps; which could very well spark a notable rally in stocks.

Pre-Market Update (video)

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What Might An Uber-Aggressive Fed Deliver?

So the Fed's September policy meeting will happen this Tuesday and Wednesday, with the market's pulse sure to be pounding come 11am (pdt) Wednesday. Yep, even though a quarter-point cut is almost certainly what they'll get, traders in all manner of asset classes will be locked and loaded just in case.

Bonus Quote of the Day

Donald Broughton, founder and managing partner of Broughton Capital ("a deep-data driven quantimental economic and equity research firm") and the author of the Cass Freight Monthly Report, thoroughly understands economic history:

Quote of the Day: Should Sound Very Familiar

I swear, JP Morgan's Patrik Schowitz must be reading our stuff 😉!

This Week's Message: Transportation Data Confirm Other Recession Indicators

Cass Information Systems' monthly Freight Index Report is widely followed and respected because, simply put:

Can't Blame Them For Trying

Given the color of the latest release of the Eurozone's Industrial Production numbers, we certainly can't fault the ECB for announcing a rate cut and a new round of QE this morning:

Quotes of the Day: This Has Our Attention!

"When prices have been driven by a lot of leveraged buying and the market gets fully long, leveraged, and overpriced, it becomes ripe for a reversal. This reflects a general principle: When things are so good that they can’t get better—yet everyone believes that they will get better—tops of markets are being made."

Dalio, Ray. Big Debt Crises

Leveraged share buybacks (companies borrowing to buy back their own shares) are the first sentence above by definition. And this very much has our attention!

Here's Investopedia on the topic:

"Between 2008 and 2018, companies in the United States spent over $5 trillion buying back their own stock, or over half their profits. As a result, more than 40% of total EPS growth has been from share repurchases.

Leveraged buybacks have made a big comeback in the U.S., where share repurchases have exceeded free cash flow since 2014.

The buyback boom has increased the risk for both bondholders and shareholders. Even investment-grade companies have been willing to sacrifice their credit ratings in order to reduce the number of shares. For example, McDonald’s, whose executives depend on EPS metrics for 80% of their pay, has borrowed so heavily to fund buybacks that their credit rating fell from A to BBB between 2016 and 2018."

Commentary On The Latest Action And General Conditions (video)

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Getting Close (to new all time highs)!

Here's the 1-minute chart for the S&P 500 future contract as I type:

The Wisdom of T. Boone Pickens (40-second video clip)

Legendary oil man and trader T. Boone Pickens left the world today, at age 91.

Here's a bit of timeless (and timely!) wisdom from the great capitalist:

Charts of the Day

The first chart below speaks to what we've been preaching herein since our proprietary macro index peaked back in January 2018:

Current Market Sentiment

Here's an internal memo (me to staff) that'll give you the flavor of current (i.e., only for this very moment) market sentiment:

"So last night China exempted a bunch of U.S. products from tariffs... Today Li Keqiang (Chinese Premier) tells U.S. business delegation that "we share wide interests & I believe we have the wisdom to find a solution acceptable to both"... Also this morning, Trump is looking to ease sanctions on Iran... and all we have is a 14-pt move in SPX... and bonds and Gold are still up on the day... That's bearish!   M"

Early-Market Update (video)

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Quote of the Day

Bloomberg's Benjamin Dow, in his blog post this morning, speaks to our message in today's video commentary:

Headline of the Day

The Dow went from notably in the red to slightly in the green on this headline this morning:

Pre-Market Update and A Look At the Consumer and Corporate Debt Picture (video)

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Chart of the Day

In Friday's video I offered up my thoughts on the jobs report: Among other (positive and negative) things, I referenced the jump in the number of folks who have taken on more than one job as a sign that there may be some stress building in the lives of consumers.

Here's the chart (grey areas highlight past recessions):



Not a good look...

Last Night's Log Entry: Treading Uncharted Flood Waters

9/8/19 Sunday

Weighing the present bull case against the bear case, while perhaps not (yet) overwhelming, clearly, the bears have the edge.

Nevertheless, and paradoxically, I now place odds that the S&P notches yet another all-time high in the very near future – before a notable correction (if not a full-on bear market) sets in – at better than 50/50.

Pre-Market Update (video)

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This Week's Message: The Good and The Not-So-Good

The good news this week is that our proprietary macro index broke a 5-week string of negative (heightened recession risk) readings, coming in at +4.65.

Pre-Market Update (video)

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Pre-Market Update And A Look At General Conditions (video)

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Finally Breaking Out of This Trading Range?? May Very Well Be!

In my earlier blog post I said:

"While setting a date for September talks would no doubt be good for a couple-hundred+ Dow points, the chasm separating the two sides is wider today than it’s been throughout the entire process."

Well, talks in Washington were just confirmed a few minutes ago, and I got one thing wrong, they'll take place in "early October", as opposed to September. 

Today's Log Entry

9/4/19 Wednesday

Stocks, at least in the pre-market, look to be essentially re-setting the start to September; recouping all of yesterday’s decline.

Pre-Market Update (video)

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Not Good News

This morning's release of the all-important (i.e., closely followed by economists and market players) Institute for Supply Management Manufacturing Survey for August came in below 50 (49.1); denoting contraction (or recessionary conditions).

Pre-Market Update (video)

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What Has Investors So Sanguine? And Good Luck If You're Trying To Trade This Thing!

In yesterday's internal log entry, which I shared herein, I made mention of China's better than expected manufacturing purchasing managers survey results. This morning we got the Euro Zone's reports, which, save for France's weren't so good.

Today's Log Entry: Little Optimism Reflected In Futures Traders' Positioning

Note to readers; here are definitions to terms featured in the notes below:

This Week's Message: Typical This Ain't!

Typically, whenever someone says to me how crazy, volatile, unpredictable, etc., the market is, I'll tell them that on a day-to-day basis it's pretty much always been that way.

Pre-Market Update

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Trade War Vacation Maybe?

Closely weighing the back and forth commentary while considering coming events, the messaging I gather directly from China's state media to the people, as well as the somewhat rooted political positioning (both sides) to this point, I think macro strategist's Cameron Crise's take this morning is a sound one:

Pre-Market Update (video)

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Chart of the Day: Economists Concerned

Per the latest Wall Street Journal Survey of Economists, it ain't just us.

Quotes of the Day: Concerning Trends and Under-The-Surface Stressors

Be it via Fed policy, or fiscal manipulation (per below), when the powers that be attempt to undo the negative consequences of their own actions (without undoing those actions themselves), well, history has proven time and again; that's how debt-fueled asset bubbles are formed.

Pre-Market Update, And A Troubling Trend (video)

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Mission Impossible For The Fed

If this, from Bank of America's foreign exchange strategist Athanasios Vamvakidis doesn't sound familiar, well, then, you haven't been reading our blog:

Bonus Quote of the Day

These words from one of history's great speculators are most instructive during times like these:

Quotes of the Day: China -- at this point -- isn't biting...

Like I said in this morning's video, despite the fact that no China to U.S. phone calls took place as claimed over the weekend, the market is treating it as near-term bullish nonetheless, as it signals the President's willingness to deal.

Pre-Market Update, And What You Should Know About "Trade Deficits"

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Quote of the Day: A Challenging Market Environment

Macro strategist Cameron Crise characterizes well this challenging environment:     emphasis mine...

Market Update (video)

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Mulling Over The Latest....

As I mull over all of the latest this Sunday afternoon -- Friday's speech by Fed Chair Powell, China's retaliation, Trump's retaliation to China's retaliation, highlights from this weekend's G-7 summit, violence in Hong Kong, the results of my weekly macro analysis (the PWA Index a little less red (but still red), the technicals continuing to worsen), how currencies are trading as I type, and so on -- I see little that would inspire me to, at this point, offer up anything that smacks of optimism for stock prices going forward. 

This Week's Message: The Risk/Reward Setup

In our year-end 2017 client letter I expressed my general bullishness, as the macro setup was about as good as I'd seen in my 3-decade+ career. I also expressed, however, that a trade war ("protectionism") would put my bullish thesis to the test.

Pre-Market Update (Video)

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This Morning's Log Entry

This morning China finally announced retaliatory tariffs in response to the latest from the U.S. (the 10% on $300 billion beginning 9/1 and 12/15); of course futures immediately rolled over (but not quite as much [yet] as you might expect).

Manufacturers Ain't Feeling It!

In case you're wondering what happened to this morning's strong rally; at 6:45 am (pdt), exactly when stocks began selling off, Markit's U.S. Manufacturing Purchasing Managers Flash (advanced [i.e., 85% complete]) Index for August was released.

Pre-Market Update (video)

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Quote of the Day

I've reintroduced Brexit into our macro narrative of late because it (the UK leaving the EU with no trade deal come 10/31, that is) indeed carries serious ramifications for global markets.

"It Always Is Debt That Gets You"

Economist Diane Swonk, in just over a minute, pretty well sums up our overall messaging herein of late.

Which is, the consumer's in decent shape, the industrial space isn't, and there's huge risk in the corporate bond market. 

When she talks about "the next traunch up" in corporate debt, she's referring to the BBB risk I've been pounding on the past few weeks:

Pre-Market Update (video)

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