Sunday, March 24, 2019

Saturday, March 23, 2019

This Week's Message: Scary Yield Curve, Scared German Manufacturers, and What's Really Troubling the Market...

The consensus among financial pundits is that yesterday's global stock market drubbing was catalyzed by the inversion of the Fed's favored yield curve signal; the 3-mo/10-yr treasury yield curve.

During "good" times the curve should possess an upward slope (10-yr yield higher than the 3-mo yield), while an inversion of the curve (3-mo yield higher than the 10-yr yield) is a warning sign that the good times may be coming to an end.

The reason why Friday's flipping of the yield curve may have been such a shocker for stocks is the widely-known (and respected) fact that since 1962 every single recession was preceded by an inversion!

Now, not to throw warm water on such a chilling development, but I have to add that not every inversion since 1962 was followed by a recession. Meaning, there have been occurrences when the curve inverted then re-steepened before re-inverting ahead of a recession.

Here are our graphs of the 2-yr/10-yr relationship (top panel) and the 3-mo/10-yr (bottom panel). The 2s/10s is the one we include in our macro index; plus, our database offers us a longer look at that particular curve. A dip below zero occurs when the long-term yield moves below the short-term (inversion). I circled the inversions that did not presage a recession:

click to enlarge...

Also note, if indeed Friday's inversion turns out to be a harbinger of the next recession (and bear market), we're, on average, still 18 months out.

Bespoke Investment Group, in their weekend commentary, addressed the historical implications for stock market returns immediately following yield curve inversions.

As you can see, if indeed, as the overwhelming message from the financial media suggests, Friday was all about the inverted yield curve (not my opinion btw), we probably should resist running for the exits just yet:

As I suspect you'd agree, prudence demands that one not take one indicator as market-timing gospel, rather, one should address it in the context of the overall macro picture.

Our PWA [Macro] Index scored a +27 this week, off 6 points from last week. Our financial markets subindex declined as a result of somewhat weakening stock market breadth on a sector-by-sector basis, along with a decline in overall short interest (folks betting on a fall); the latter being a contrarian indicator (generally, the more the bears there are [outside of recessions], the more the potential fuel to push stocks higher on any snippet of good news). The inverted yield curve took our financial stress subindex down a bit, while falling commodity prices along with a declining Baltic Dry Index (tracks the cost of shipping raw materials across the world's oceans) shaved 4 points off of our economic subindex.

Here's a two-minute video illustrating the historical importance of our analysis:

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Per the video, our analysis does not yet have us moving to a defensive posture.

On top of the yield curve news -- and widely reported in the media -- Germany posted an abysmal (recession-ish) manufacturing Purchasing Managers Index (PMI) first thing Friday morning; further calling global economic conditions into question. Interestingly, Germany's services PMI came in firmly in expansion territory; a development completely ignored in the financial press. 

While I suggested above, that, in my view, Friday's selloff catalyst was not the yield curve, or Germany, I do believe that they absolutely added to -- and validated -- the angst the world is feeling over the prospects of further disruptions of trade flows, supply chains, and, thus, the waning of general economic sentiment directly resulting from the ongoing U.S./China trade war, and the serious threat of coming trade tensions between the U.S. and Europe.

Make no mistake, if indeed we're not nearing the end of this unique bout of protectionism, the global economy, and equity markets, will have a very tough time of it going forward. The good news is that the political risk of such a scenario is monstrous! Which strongly suggests that such a long-term scenario is unlikely to unfold. But, boy, we'll be keeping our eye on it!!

Bottom line for now: A generally okay macro backdrop, decent valuations, sufficient pessimism (potential market fuel), and amazingly dovish central banks sets a nice stage for stock market performance going forward.

Here again (originally shared with you on 3/13) is my abbreviated current 6-month base case (with followup commentary in blue):
1. Accommodative central banks, and governments, will stimulate in aggressive-enough fashion; sufficient to stave off recession this year (and likely next).
The Fed just announced that there'll be no rate hikes this year, and that they'll be ending their balance sheet roll-off in the fall.
2. The U.S. will ink a deal with China that will see a sharp short-lived rally in stocks. That will embolden Trump to threaten hardball with Europe. Global equities (save for China) will immediately tank when markets sense such. Equities tanking will bring the sides together quickly to mend fences and make a deal. Monetary and fiscal easing will have bolstered economic sentiment enough to sustain the relatively short US/EU tiff.
The President has been sounding off about Europe as he signals that a deal with China is forthcoming.
3. Article 50 will get extended, the hard-Brexiteers will soften and a deal will be struck later in the year. The extension will relieve pressure on the pound, UK and EZ equities.
A one-month delay was announced last week.
4. Global equities will trend higher into the fall. Bonds will hold up (yields will hold down) until trade issues are resolved; trending lower (rates higher) thereafter on the prospects for accelerated growth and tighter central banks. The Dollar -- despite the prospects for rising U.S. interest rates -- will trade lower on the prospects for the rest of the world’s economies/asset markets catching up.

What can go wrong?

1. Trump walks away (with no near-term path for turning back) from a China deal. Hugely bearish for stocks! Recession risk explodes higher and we get busy adjusting client portfolios.

2. A deal gets done, but existing tariffs remain. Not as bad as no-deal, but stocks will nonetheless sell that news.
The President, alas, promised precisely that last Wednesday morning. The Dow closed down 140 points Wednesday (after a huge intraday rally on the Fed announcement), and down 469 points Friday (after a 240-point rebound on Thursday).
3. The coming row with Europe gets under the key players' skins to the point where they abandon their economic/market-centricity and we have a protracted US/EU trade war; which means general sentiment tanks, taking an already weakened economy with it. And we get busy.

4. Brexit blows up and sparks a cascade in European equities that ripples across the globe. Best case scenario, 10-20% correction; worse case, global sentiment tanks to the point of catalyzing the next recession. And we get busy.

 #1 or #2 and #4 both occur this year. And we get busy!

We'll keep you posted.

Have a nice weekend!

Friday, March 22, 2019

Perspective On Today's Selloff (video)

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This Morning's Log Entry: We need a selloff right here!

Wednesday’s rally on the Fed decision, then the plummet immediately following Powell’s press conference made perfect sense to me – after hearing Trump proclaim that he has no interest in rolling back tariffs as part of a China deal. Therefore, Thursday’s big rally surprised me – I was absolutely expecting follow through selling.

Thursday, March 21, 2019

Still -- for the moment -- Skeptical

This morning's very strong rally is simply that, thus far, very strong. Volume is above average and breadth (advancers vs decliners) is outstanding!

Last Night's Log Entry

Here's an excerpt from last night's log entry. And, per paragraph two, stocks are set to open lower (although could be, or get, worse) this morning:

This evening China is surprisingly (although the Fed announcement was extremely bullish for EM [bearish the dollar]) trading higher, as are SPX futures, although the latter are losing steam at the moment.

Wednesday, March 20, 2019

Brief Commentary on the Latest Action (video)

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Unfortunate Headline of the Day!

Not the headline the market was looking for!

Tuesday, March 19, 2019

This Evening's Log Entry

Stocks completely gave up what was an impressive move further above what had been stiff resistance. The selloff was in response to news that Chinese trade negotiators were backing away from what had been pre-commitments on issues around intellectual property. Followup articles reported that China’s threatened reversal is inspired by the U.S. not committing to the rolling back of tariffs introduced by the Trump administration.

Headline of the Day

Stocks, in a virtual instance, gave up the majority of their gains this morning on the following headline:

This Morning's Log Entry

The market is rallying this morning on the latest EU/UK developments virtually assuring a Brexit delay, and on expectations for an un-eventful wrap up tomorrow of this week’s Fed meeting. A rebound in Boeing, as well, is helping the Dow. 

Saturday, March 16, 2019

This Morning's Log Entry

My short-term chart character analysis to end last week speaks bullishly about global equities’ prospects in the near-term, but somewhat discriminatorily:

Friday, March 15, 2019

Quote of the Day

The snippet below from Econoday's highlights of today's U.S. Industrial Production report speaks to what we've been preaching herein ad nauseam for the past couple of years: Protectionist policies (read tariffs) -- as I attribute no small measure of the present global slowdown to such -- are unequivocally no way to promote a nation's economy at large, let alone even the sector(s) such acts are ostensibly designed to protect:  emphasis mine...

This Week's Message: Encouraging Breadth (video)

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Thursday, March 14, 2019

This Morning's Log Entry

Clearly, Trump is bothered by pundits in the media suggesting that he’s desperate for a China trade deal. Thus, he’s pushing back with statements that he’s “in no hurry”, that he “could walk away”, and so on. Additionally, the latest stock market strength, he believes, gives him that prerogative.

Wednesday, March 13, 2019

Today's Log Entry

I need to preface this one with a huge caveat: While it might appear that I am making a prediction in today's entry to our internal market log, that's not how I view it. Instead, my current (always subject to change) "6-month thesis" (abbreviated version below) is simply the laying out of my current (always subject to change) base case.

Brief Commentary on the Latest Action (video)

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Friday, March 8, 2019

This Morning's Log Entry

China’s trade activity has plummeted, relative to expectations, European growth has been subdued and the U.S. is clearly showing cracks; virtually all of it related to slowing global trade, and the uncertainty/fear that it engenders.

Thursday, March 7, 2019

Brief Commentary on the Latest Action (video)

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Wednesday, March 6, 2019

This Morning's Log Entry/This Week's Message: It's All About U.S.-Messaging On Trade!

China continued its strong rally overnight while U.S. equities remain in apparent consolidation mode below 2800 on the S&P 500 and above its 200-day moving average.

Tuesday, March 5, 2019

Long-term Signal Encouraging (video)

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This Morning's Log Entry

Chinese equities bucked the trend last night by not following Wall Street’s lead lower; the Shanghai and Shenzhen indexes closed up .9% and 2.2% respectively. New fiscal and monetary stimulus, along with the promise of a trade truce, is inspiring a risk-on mood in China.

Monday, March 4, 2019

Are We Staring Into a Sell-the-News Scenario?

A growing theme among market pundits is that the ending of the U.S./China trade spat is already baked into the stock market; i.e., it's a "sell the news" event. Hence today's selloff.

Waiting for Detail

The S&P's down 32 points as I type, the Dow's off roughly 360; volume's a little below average for this time of day (suggesting there's no panic in this morning's action). Early on we saw both indices nicely higher on news that a trade deal is near. 

This Morning's Log Entry

This week’s important data releases (construction spending, ISM Services, new home sales, Beige Book, jobs, etc.), barring any huge surprise in the jobs number, will be overshadowed by trade headlines. Domestic politics will continue its steady stream of sound bites that have, thus far, been ignored by markets. Asian markets closed higher, although well off of their overnight highs, U.S. equity futures are set to open higher.

Sunday, March 3, 2019

Politician Do What Politicians Do, The Unfortunate Headline of the Day, And You're Likely Missing the Point...

Updated Tuesday 3/5/19

Indian Prime Minister Narendra Modi rode to office on the promise of massive economic reform, job creation, and so on. And, yes, a number of measures have indeed moved the needle and inspired a great amount of foreign capital interest in India's huge potential.

Generation Z May Surprise You -- OR -- Is Millennial Socialism a Byproduct of a Strong Economy?

So, do the macroeconomic conditions prevailing during one's upbringing impact one's idea(s) of how things should be?

Recently I offered my two-cents on "millennial socialism", as, apparently, per the polls, a large swath of millennials share "socialist" values. The following, from Visual Capitalist, introduces us to the next generation to enter the fold; Generation Z, those born between 1997 and the early 2010s, who make up 25.9% of the population.

Saturday, March 2, 2019

Brief Commentary on the Latest Action (video)

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Friday, March 1, 2019

This Morning's Log Entry

2/29/19 (7:18am)

A 200+ point Dow move on positive trade news and decent overnight data has faded on a weaker than expected ISM Manufacturing survey and a consumer sentiment reading dropping 2 points for February.

This Week's Message: The Fed 'Ultimately' Back In Play Would Be A Good Thing!!

The Caixin Manufacturing PMI for China came in just a shade below 50 last evening, which was a marked improvement over the previous month. Asian equities moved from red to green on the news, rallying hard into the close on that and on positive trade news.

No Worries Over the Housing Market

If you've been worrying about the current state of the housing market, well, you can stop now.

Here's Bespoke Investment Group's summary of yesterday's data release:

Thursday, February 28, 2019

This Morning's Log Entry

This morning's Q4 GDP estimate was net positive; above expectations growth with tame inflation. The Fed is safe to sit back and watch as 2019 unfolds, which bodes well for stocks.This week's dip in equities has been notably tame thus far considering the resistance zone the market presently sits in. 

Wednesday, February 27, 2019

Just Because It's Interesting OR Intermarket Relationships Are Key!

"So why was Caterpillar up today if it just got seriously downgraded?"  asked our crazy-smart, inquisitive, CCO (Chief Compliance Officer) Jeannette this afternoon. I said "well, could be because there's evidence out there that maybe global construction isn't about to go rolling off into the abyss after all. In fact, copper, (that ubiquitous construction input) is painting an altogether different picture."

The Trade War's Doing A Number On Business Investment!

When questioned before Congress this morning on the impact of the "trade war" with China, Fed Chair Powell confirmed that respondents to the many surveys the Fed performs have major concerns, and that in some cases it is indeed influencing their expansion plans.

This Morning's Log Entry

Domestic politics, geopolitics and the Fed are providing some push/pull for the market this week; while the S&P bumps up against what has been very strong technical resistance during the current correction:


Tuesday, February 26, 2019

This Morning's Log Entry


The strong near-term setup is getting tested by Trump’s “maybe there’ll be no deal” (on China) statement yesterday, as well as on China’s followup comments which expressed a somewhat muted optimism. Neither commentary, however, suggests that there’s any credible growing threat to an ultimate deal, at this point. 

Despite the strong near-term underpinnings,  given the speed of the move off of the 12/24 low, traders might very well take any excuse to take some profit right here.

Monday, February 25, 2019

Brief Market Update (video)

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Sunday, February 24, 2019

This Morning's Log Entry

This coming week will be interesting, if not telling. Trump appears to be at odds with Lighthizer; this has been a long time coming. Lighthizer’s history, and utter lack of economic tutoring (by his own admission) always made him a strange, and dangerous, pick for the top trade post. Up to him, the negotiations would drag on and tariffs would likely rise in the meantime. I.e., if it were up to him we’d be staring down stronger odds of a near-term global recession; although he – as his words and actions dictate -- would be oblivious to the risk.

Friday, February 22, 2019

This Morning's Log Entry and This Week's Message: Europe's Trade Negotiation Strategy, If....

A consensus seems to be growing that since a trade deal with China is a virtual certainty, it’s already in the market. If that’s the case, we should anticipate a sell-on-the-news scenario.

Thursday, February 21, 2019

Quote of the Day

This, from the President this morning (on 5g), should be music to every investor's, and consumer's, ear:  emphasis mine...

This Morning's Log Entry

U.S. equity futures and Asian stocks rallied notably last night on news that the U.S. and China are drafting a multi-point plan to end the trade war. That rally, however, completely reversed on followup news suggesting there remains a marked lack of detail. News that China is banning Australian coal imports seemed to shake global markets a bit as well.

Wednesday, February 20, 2019

Market Update (video)

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Sunday, February 17, 2019

My two cents on "millennial socialism"

The following from this week's issue of The Economist speaks to what my study and observations of the past 30+ years has me concluding:

Saturday, February 16, 2019

This Morning's Log Entry

Stocks maintained strong gains throughout the day yesterday, then rallied hard into the close; traders were more than comfortable being long into the weekend. This pattern of late day buying during the current rally is hugely bullish.

Friday, February 15, 2019

This Morning's Log Entry

Optimism from U.S./China talks and positive earnings news out of Europe have stocks rallying hard this morning.

This Week's Message: All You Need To Know About the Latest Market Action

While the following is no doubt our shortest weekly message ever, it tells you all you need to know about the latest market action.

From Steven Drobney's extremely instructive Inside the House of Money:   emphasis mine...
"Sometimes speculators add to volatility, other times they dampen it. The important point is, they don't influence the trend; underlying pressures along with policy decisions drive market events."

Thursday, February 14, 2019

Quotes of the Day: Too Much Emphasis on Trade??

If it seems like we're beating the global trade issue to death here on the blog, well, I just read the transcript from today's Coca-Cola (that great American brand) earnings conference call.

Headline of the Day

Confirming what we've been preaching herein ad nauseam, just when the major averages were on the verge of green this morning, this headline hit:

This Morning's Log Entry

Dow and S&P futures this morning went from nicely positive to flat on higher than expected weekly jobless claims and lower than expected m/m PPI, then completely rolled over on hugely worse than expected December retail sales.

Wednesday, February 13, 2019

My Two Cents on the Share Buyback Debate

A hot topic, among many others, today is the push to regulate share buybacks by our iconic U.S. brands. Surprisingly, even some on the right (Marco Rubio anyway) find it to be (please pardon my cynicism) politically expedient to join the chorus.

Market update, and what we're looking out for going forward (video)

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Tuesday, February 12, 2019

This Evening's Log Entry


The latest BofA/ML mutual fund manager survey shows a presently high level of bearishness among respondents and cash positions at their highest since 1/09.

No Need To "Bring Back the Jobs" -- And Quote of the Day

This morning's Job Opening and Labor Turnover Survey (JOLTS) for December (1 million+ more job openings than there are folks looking for work), once again tells us that, contrary to popular political opinion, the U.S. labor market is in no way hurting from the strategic movement of some production to the world's lower-cost labor markets.

Chart of the Day: Foreclosure & Delinquency Data Say Something

In a weekend blog post I illustrated the market's view of the present state of U.S. housing (bullish). Keeping with that theme -- by way of foreclosure and mortgage delinquency rates -- here's more evidence from this telling sector that the U.S. consumer-driven economy, not to mention the financial condition of the U.S. consumer him/herself, remains in pretty decent shape:

Monday, February 11, 2019

Today's Log Entry


Big overnight gains in Asia and Europe didn’t translate to gains in the U.S..

Quote of the Day

As I stated on Saturday (and a zillion times previously), trade is THE global issue of the day -- and is utterly huge in terms of the direction of the economy and the markets going forward.

Sunday, February 10, 2019

Charts of the Day: Housing Stocks Say Something

Each week I perform a detailed technical analysis of the equities that make up the key sectors of the economy. While these analyses help me gauge to what extent, if at all, we should be exposed to a given sector, I'm also looking for any and all signals pointing to the state of the overall economy.

Saturday, February 9, 2019

This Week's Message: Strong Internals, Worrisome Externals (video)

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Friday, February 8, 2019

Chart of the Day: Nothing Panicky At This Point

While 500ish points of Dow downside (yesterday and so far this morning) is an attention getter, at this point, it's been pretty blah.

Last Night's Log Entry

The market fell apart today when Larry Kudlow suggested that the U.S. and China are essentially nowhere near a trade deal. This is yet another instance where Trump and another adviser or two (in this case Mnuchin), literally hours before Kudlow’s comment, touted great progress and a deal in the near-term offing – only to see the resulting rally quashed by conflicting signals coming literally from someone on the same team.

Thursday, February 7, 2019

Trade Wars: The Pain and the "Gain" (video)

If you're interested in understanding the cold realities of protectionism, this short clip touches on the long-term commonsense of the issues of the day, as well as where all of the short-term thinking comes from.

Headline of the Day

This headline speaks directly to the closing message of this morning's  video commentary:
"Dow drops 250 points after Larry Kudlow says US and China still far away on trade deal"

Brief Look At This Week's Action (video)

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Quotes of the Day: No Surprises Here

Reuters this morning speaks to the point I made in yesterday's log entry, as well as to the roiling markets have taken due to the trade war. None of this should be of any surprise to anyone who remotely understands modern-day economies and markets.

Wednesday, February 6, 2019

This Morning's Log Entry

Clearly, as the Australian central bank joined the flock of doves this week, the world’s central bankers are, on balance, in anything but a tightening mood these days. While, global growth has definitely slowed, Q4’s near bear market in global equities is what truly captured the world’s monetary policy makers' attention.

Tuesday, February 5, 2019

Brief Look At The Latest Action (video)

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Monday, February 4, 2019

Tracking our dollar thesis...

In our latest annual message I made the case for a weaker-trending dollar this year partly based on the prospects for a rotation away from U.S. equities into non-U.S. equities; those found in the Eurozone in particular:

Sunday, February 3, 2019

My Two Cents On The Tax Debate

While, like most folks who pay taxes, I'm never one to turn down a tax cut, I often find myself explaining to clients how a recession in the near-term would be unusually tough to combat using conventional fiscal and monetary means. 

Friday, February 1, 2019

This Week's Message: Still Ample Fear Out There (video)

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So, Is The Fed Suddenly Back In Play?

In a log entry this week I predicted that the jobs number would be good this morning "but not a repeat of last month's 300+k." Boy was I wrong! The January number was +304k!

Thursday, January 31, 2019

Quote of the Day: "A Conjunction of Positive Factors"

Here, Benjamin Robinot, a credit specialist and adviser to a high-yield fund in Asia, is speaking to the prospects for Asian junk bonds going forward. However, he speaks to the prospects for the global economy this year as well. 

This Morning's Log Entry

Foreign data came in mixed overnight, with China’s PMIs suggesting that its slowdown may be finding a bottom, and Eurozone GDP numbers looking okay, save for Italy, which remains ugly.

Wednesday, January 30, 2019

Video Commentary: Technically Constructive

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This Morning's Log Entry

Private payrolls came in at +213k, vs +174k consensus estimate, while pending home sales came in at -2.2%, vs +0.3% estimate. Mortgage purchase apps fell 2.0%, however the reading (along with the previous two) remains above the post-crisis low in 2010.

Tuesday, January 29, 2019

Chart of the Day: Concerned Consumer!

If you've figured that the Q4 stock market plunge and the government shutdown has/had weighed on the consumer's psyche, you've figured correctly. Today's Conference Board's consumer confidence survey release is concerning!

Chart of the Day: European Stocks Painting a Decent Picture

While global growth continues to wane, with Europe being no exception, European cyclical stocks are outperforming defensives (less economically sensitive) markedly.

Monday, January 28, 2019

Today's Log Entry


Fed meeting this week: No change in rates, “patient” and “data dependent” will be the message; a statement that they’ll use all tools when needed (including balance sheet) will be given in the Q&A. Anything less dovish will likely spark a selloff in equities.

Brief Commentary On This Morning's Action (video)

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Saturday, January 26, 2019

Abating Headwinds Could Create That Rare "V" (video)

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Friday, January 25, 2019

This Week's Message: "Mixed", At This Juncture, Is Good

As long-time readers know, in addition to the data we track within our proprietary index, I maintain a "monthly trends" file where I simply copy and paste data and news articles that speak to the present state of global general conditions. 

Thursday, January 24, 2019

Quote of the Day: Wisdom to live by!!

If I had a nickel for every time, over the past 34 years, a client asked me what I think about the prognostications of, say, Ron Paul, Peter Schiff, David Stockman, Harry Dent, Jimmy Rogers -- or any of the folks who find themselves in front of the national media prognosticating on the decisions, emotions, desires and whims of 7+ billion Earthlings -- man I'd have me some serious nickels!

This from Bloomberg's Cameron Crise is wisdom to live by:

Why The Market Hates The Trade War

For readers who perhaps don't sympathize with my repetitiously-stated concerns over protectionism, perhaps they'll take the latest from Fortune's CEO survey to heart.

Wednesday, January 23, 2019

This Morning's Log Entry


Selloff yesterday turned out to be on either erroneous or reversed news regarding the cancelling of upcoming trade talks. The market bounced back strongly this morning, however the gains are waning. Headlines suggest the market struggling here is about weakening economic growth prospects.

Tuesday, January 22, 2019

Headline of the Day

In this morning's video commentary I pointed to the high likelihood that 2630 on the S&P 500 would be tested (on the way down) this week. Well, that was quick, as I type the index trades at 2626.

Not Nearly Out of the "W"oods Just Yet (video)

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Sunday, January 20, 2019


As the presently hot topic of trade rears its head during virtually all of our client revue meetings of late, it becomes abundantly clear to me that many, if not most, folks sympathize with the narrative that the U.S. has been taken advantage of for years by its trading partners, the focus of late being on China.

Saturday, January 19, 2019

This Week's Message: Enjoy Your Coffee, But Don't Let It Sway You!

The reality that markets are mere reflections of human action has been a growing theme herein of late. And while that's easy to get, and should go without saying, it is the most important distinction that I hold firmly in mind as I go through my daily and weekly exercises in pursuit of the knowledge of the state of general conditions.

Thursday, January 17, 2019

Charts of the Day: Unequivocally Bullish Action

In a Tuesday blog post I offered up the following:
While the trading off of the December 24th low has indeed been bullish (late intraday buying, rallying amid bad news, strong breadth, etc.), I want our clients to understand (if not expect) that a testing of that Christmas Eve low remains a distinct possibility. Although, again, the action of late has been encouraging...
Should the bulls succeed 2600, 2630 (where the next resistance line meets the 50-day moving average [green line]) will be the next big test.

2018 Year-End Letter, Conclusion

Link to Part 1  (What Makes Us Tick)
Link to Part 2  (General Conditions)
Link to Part 3, Sectors  (Steep Corrections During Expansions)
Link to Part 3, Sectors  (Financials and Industrials)
Link to Part 3, Sectors  (Technology)
Link to Part 3, Sectors  (Materials and Energy)
Link to Part 3, Sectors  (Cons. Discretionary & Comm. Svrcs.)
Link to Part 3, Sectors  (Healthcare and Cons. Staples)
Link to Part 3, Sectors  (Utilities and REITs)
Link to Part  (Bonds and Gold)
Link to Part 5  (The Dollar)
Link to Part  (Global Investing)

In our 2018 year-end message we've presented what we believe to be the characteristics of good portfolio managers. We've expressed the sense of security we gain in the understanding that while not all good investments make money, if we strive to make only good investments the odds are strongly in our clients' favor over the long-term. We highlighted the whys and wherefores of our present sector and regional weightings. We shared our views on the importance of maintaining a global investment mindset and we expounded on why we think that many currency traders once again may be on the wrong side of the dollar going into 2019.

Wednesday, January 16, 2019

U.S. Housing Not So Bad

Whether we're talking the stock market or economic indicators, we are forever looking at how prices/activity responds to the overall character of the news related to a given market or to a given segment of the economy.

Quote of the Day: The ECB "has the [Eurozone] market's back"

In our 2018 year-end letter's section on the dollar I pointed to low expectations for the Eurozone economy leading to a softer European Central Bank, and how that, along with low relative valuations for Eurozone equities and our view that recession risk for now remains low, makes for a bullish setup for the region's stocks, as well a bearish one for the U.S. dollar (a bullish scenario for equities the world over).

Tuesday, January 15, 2019

Chart of the Day: Don't Break Out Your Rally Hat Just Yet!

As I illustrated for you over the weekend, 2600 on the S&P 500 stands to be a tough technical level to beat in the near-term.

2018 Year-End Letter, Part 6: Global Investing

Other than updating the accompanying charts, and my closing comments, there's really no improving on our 2017 letter's section on global investing. Ironically, as I type here today, Brexit remains an issue (mentioned in the 2016 must watch video), and while Italian banks aren't as forefront as they were then, the new populist Italian regime definitely is (although they did finally come to terms with the EU recently on what initially was an utterly ridiculous budget proposal).

If there's been a common theme over all the years we've been blogging, and, for that matter, managing money, it's that the world is a very big place, and the U.S., in terms of its share of the world's human capital, is a very small place. While we can debate the causes of the miracle that makes the home of a mere 4% of the world's population the far and away world's largest economy, we can't deny the fact that the human race is becoming more connected by the minute and, thus, the nations and institutions that embrace the interdependence that this global connectivity breeds -- while successfully navigating the at times turbulent geopolitical waters -- will prosper the most in the decades to come.

Headline of the Day

If you're wondering what happened to this morning's strong rally in the Dow (up triple-digits to down single-digits), here's your answer:

Monday, January 14, 2019

Quote of the Day: Hard Brexit Bad For The Economy, And, Thus, The Politicians...

In "The Dollar" section of our 2018 year-end letter, one of the bullet points on why I anticipate a downward bias for the greenback was the economic, and, thus, the political risk inherent in a hard Brexit. The following from Bloomberg's Markets Live Blog this evening speaks to that point:

Sunday, January 13, 2019

2018 Year-End Letter, Part 5: The Dollar

In the dollar section of our 2017 year-end letter we made our contrarian (currency traders were betting the dollar would fall) case that the dollar was likely to trend higher throughout 2018. Here's our final paragraph where we acknowledge the difficulty in predicting and the would-be benefit if we happened to have been wrong:

Saturday, January 12, 2019

A Tough Test for the Recent Rally is Imminent (video)

Once playing, click the icon in the lower right corner for full screen. Focus should occur after a few seconds; if not, click the wheel to the left of the YouTube icon to adjust:

Friday, January 11, 2019

Quote of the Day: Morgan Stanley Sees A 'W' Coming...

Last Thursday I pointed to strong historical evidence that the deep correction low reached on Christmas Eve will ultimately be tested, creating your typical W pattern, as opposed the V pattern that's developed thus far. Morgan Stanley's chief strategist Mike Wilson, per below, thinks it's virtually assured. 

This Week's Message: Realistically Optimistic, For Now...

Your preconceptions, if not your predisposition, could have you judging the graph below in either a positive or a negative light.

Here's our money market fund assets chart since the last recession:

Thursday, January 10, 2019

2018 Year-End Letter, Part 4: Bonds and Gold


We'll limit our narrative on bonds to the investment grade space (high quality corporates and treasuries) and keep it short and sweet.

Wednesday, January 9, 2019

It's Very Windy Out There!

Apple just cut its iPhone production by another 10% and the World Bank just lowered its global growth forecast for 2019, and the stock market just posted its 8th up day out of the last 10.

Charts of the Day: It's All About Trade, At the Moment

Traders came into the morning expecting a strongly positive statement from the U.S. team after concluding 3 days of talks with China's trade negotiators.

Tuesday, January 8, 2019

The Shorts Are Back, In Force...

On occasion herein I'll make reference to "short interest" or to the "shorts" when referring to traders who are betting that the market (or a given stock, commodity, etc.) is about to fall. Shorting is the act of selling borrowed shares with the expectation that they'll be returned to the lender after the borrower repurchases them at a much lower price; the difference being pocketed by the borrower.


To give you a feel for how sensitive the stock market is to the trade negotiations with China, here's the Dow this morning:

Monday, January 7, 2019

2018 Year-End Letter, Part 3: Sectors: Utilities and REITs


We stuck with our zero target to utilities throughout 2018, despite the end of year economic uncertainty that saw the sector slip into the green with a 1.4% gain on the year. While a 1.4% gain sounds like nothing to write home about, it did land the sector in 2nd place on the year, behind healthcare (+3.4%).

Data of the Day: The Economy's Doing Okay

The Institute for Supply Management's December services sector survey says the economy is still expanding, although at a slower pace of late. December's score of 57.6 represents a sharp decline off of November's 60.7.

Sunday, January 6, 2019

2018 Year-End Letter, Part 3: Sectors: Healthcare and Consumer Staples


In last year's letter we expressed our view that, given our assessment of general conditions at the time, the healthcare sector -- with its defensive nature -- was likely to under-perform the more cyclical sectors in 2018. Although we nonetheless felt that the sector held sufficient prospects to justify a high single-digit weighting.

Saturday, January 5, 2019

This Week's Message: The Intraday And The Big Picture (video)

Once playing, click the icon in the lower right corner for full screen. Focus should occur after a few seconds; if not, click the wheel to the left of the YouTube icon to adjust: 

Friday, January 4, 2019

2018 Year-End Letter, Part 3: Sectors: Consumer Discretionary and Communication Services

Consumer Discretionary:

Take a look at the top 10 names in our core consumer discretionary sector ETF:

Home Depot
Booking Holdings
General Motors

2018 Year-End Letter, Part 3: Sectors: Materials and Energy


I could essentially copy and paste our outlook for the industrials sector and insert materials. Recall that I cited materials as vying for the top spot with industrials as 2018's most frustrating sector.

In a nutshell: Materials still warrant a 15% target weighting in our view; based on generally decent (still) macro conditions, the prospects for a sizable infrastructure spending bill in the U.S. sometime in 2019 (yes, this one has bipartisan support), and, contrary to our view coming into last year, the prospects for an on balance weakening U.S. dollar during the course of 2019.

So Now The Traders Step In

This morning we're seeing a nice extension of a rally that was initially sparked by positive trade news and better than expected data out of China. The gains have extended on Fed Chair Powell masterfully -- and justifiably -- walking back his recent commentary that sparked a deep selloff.

Thoughts on Powell: The Euphoria and the Risk

Logging my thoughts as I listen to Powell this morning:

Listening to Fed Chair Powell as I type. His commentary was everything the market could ask for. In the followup interview, the interviewer just posed the question that killed the market at the recent press conference (on the balance sheet). Powell is struggling with it, but he's stopping short of using the "autopilot" term that was so destructive a few weeks ago. 

That line of questioning is over now and he didn't crash the plane, so to speak.

On this morning's jobs number, and what the market is really rallying on ahead of Powell's comments...

My initial thought when I saw this morning's blowout jobs number (312k vs 176k expected) was, frankly, not positive with regard to the stock market. My thought being that it was too good, given that the market is currently begging for the Fed to back off. A crazy strong labor market, with, by the way, wages rising at the fastest clip in 10 years (read inflation), is exactly what the Fed's talking about when they talk about raising interest rates next year. Fed Chairman Powell's commentary this morning (7:30 pt) could be hugely consequential to the short-term direction of the market. 

Thursday, January 3, 2019

Today's Action

A lot to unpack in today's session. I pretty much cover the long and the short of it in the following bullet points:

Could Be Another "W" (or of course worse) Before It's All Said And Done...

The last 5 trading days have seen a very nice bounce in stocks, and you could make a case for its legitimacy based on the prospects for Fed Chairman Powell to make up for his recent press conference as he meets with previous Fed heads tomorrow; the data of late would justify a softer tone, which, depending on how it's delivered, could go a long ways toward delivering the market from its recent woes. Plus, virtually all of the latest tough news has been to some degree, and deservedly, tied to the present uncertainty over U.S./China trade relations. Clearly, odds favor a solution in the not-too-distant future.

A Real Test of Recent Late-Day Sentiment! And Remember What I Said Monday...

There's this old Wall Street adage: "the amateurs trade the open, the pros trade the close."

Wednesday, January 2, 2019

Bonus Quote of the Day

Yep (per my speculation in an earlier post), looks like the copper, and the Australian stock, rally this evening has to do with new stimulus in China:

2018 Year-End Letter, Part 3: Sectors: Technology

I began making the case early in the year that tech is, generally, in a compromised place relative to the other cyclical sectors; industrials and materials in particular.

Quotes of the Day

The following from Bloomberg Markets on the Australian dollar this evening speaks to what's presently impacting sentiment and ailing global markets:  emphasis mine...

Headline of the Day

While we can debate whether December's action was a "stock market glitch", the second part of the President's statement makes perfect sense to me:

Brief Note on This Morning's Action

Equity futures trading early last evening -- strongly in the green -- made sense to me; as the four last trading days saw buying surges at the close (with 3 of the 4 closing at the highs of the day), denoting a bullish turn in trader sentiment. I.e., you don't stay long overnight if you're not anticipating a generally positive shift in market sentiment.

Tuesday, January 1, 2019

2018 Year-End Letter, Part 3: Sectors: Financials and Industrials

In the following we highlight what we view to be the key fundamental considerations for the financials and industrials sectors (U.S.) going forward: