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Here’s a bit of feedback from a subscriber recently:
“We deal with 20 Banks globally and I get more from your note and video than all of them”
I’m pretty sure this little exchange between two fellows I follow closely on Twitter and who’s work I’ve been watching for years is indicative of how many feel after the S&P 500 finished the week at a record close of 3120.46 and the Dow crossed the 28000 mark for the first time at week’s end to close Friday at 28004.
Many on Twitter are incredulous at the price action – raging against the move higher which they appear to see as anathema to their sense of where things should sit if not for the obvious, and directed decision, of the Trump Administration to continue to talk makrets higher via trade. No Peter Navarro this week, no he’s been relegated to the back benches as larry Kudlow and Wilbur Ross were trotted out to spin positively.
The message? Buy stocks where diamonds – this is the greatest US economy ever.
We know that not to be true. The US economy has clearly decelerated over the past year. But the Fed is right when it continues to tell us – as many fed officials have been want to do in the past couple of months – that Economy USA is “in a good place”. Consumers doing okay, jobs market still reasonably strong, even as manufacturing struggles – ahhh, the service and consumption-based economy, a joy to behold.
[My thesis, FWIW, is the reshaping of developed markets economies into service/consumption lead generates lower growth but also the lower amplitude of growth. So more stability, less frequent booms and busts, longer periods of expansion, and overall lower inflation through time.]
Back to stocks then and in the same way as the hand-wringers who were calling for a recession last year or at least by now in 2019 have had to rework – or at least retime – their hypothesis so too those who thought a redux of equity market weakness was coming [like me back in October] have had to rework that thought.
Indeed, as the CNBC headline said of the latest BAML fund manager survey during the week, “Fear of missing out on a rally replaces recession worry in the most widely watched investor poll”. Via the article (my bolding):
Michael Hartnett, chief investment strategist at Bank of America, also said that manager global growth optimism surged by the most in 20 years to 18-month highs, a sign investors expect better manufacturing and profit numbers worldwide.
“The bulls are back…global recession concerns vanish and ‘Fear of Missing Out’ prompts wave of optimism and jump in exposure to equities & cyclicals,” Hartnett wrote in a note to clients. “We say…easy part of rally over, tougher part of rally beginning…but rally it can as no ‘excess greed,’ there is ‘excess liquidity’ (and trade/fiscal easing), and corporate earnings set to accelerate.”
No wonder the latest Kudlow goosing attempt Friday found traction with the buyers and the big option level of 3100 gave way.
I may sound hard on the rusted-on bears, but as Juliet Declercq told Eric Townsend on a Macrovoices AllStars Podcast last week – it is the loudest handwringing shouters [I’m paraphrasing] who seem to attract the most coverage and followers while the more even-handed and even-tempered folk are left in their wake.
Apparently making money isn’t the key consideration any more – it’s clicks and likes :S
Oh, and Juliette is one of the sharpest out there and only has 8300 odd followers on Twitter – it’s a travesty, go follow. Here is here Twitter handle @JulietteJDI
I myself am glad that in writing on markets almost every day for decades I’ve been able to develop a strategy where I exercise my rhetorical self and give it voice but it’s my trading self – THE ONE THAT FOLLOWS THE PRICE ACTION – which has the most influence on my positioning.
Indeed since I put out my “A risk management approach to Markets right now” after releasing my thoughts to paid subscribers the day before the S&P 500 is up 6.21%. Yes I still have a pile cash in my account, unfortunately, and yes I’ve rolled the delta back down consistently as price has risen in the S&P 500 and global stocks – but I’m comfortable I’m hedged in my superannuation account where my rhetorical self invests.
My trading self though, as you can see in the positioning is long stocks and the Jimmy R has been long for some time – since early March this year at levels around 2800.
So, in a trading sense even though the stall in price below 3100 in the S&P 500 and overall in some other indexes generated some sell signals on the daily MACD system last week they were not triggered by price and the longs remain intact for the moment. And while the 15 ema – my short term trend indicator – is at 3073 and chasing the price higher, while the S&P 500 price stays above it the uptrend remains intact.
But clearly this trade in stocks in the US and around the globe is highly geared to the FOMO which is in turn associated with the Phase 1 trade deal. BAML’s Michael Hartnett said in the survey note that investors still said “trade war” as the biggest risk to this rebound in stocks. But, like me I guess, they thought a “trade truce” can be enough to keep stocks grinding higher.
Troublingly though it does appear the “tariff rollback” on the US side of the trade war that China continues to request and the US President seems to resist has changed the narrative on the Phase 1 talks. You can see that – assuming I’m not overreading things – in a Xinhua story Sunday where the Chinese news site says:
BEIJING, Nov. 17 (Xinhua) — Chinese Vice Premier Liu He, a member of the Political Bureau of the Communist Party of China Central Committee and chief of the Chinese side of the China-U.S. comprehensive economic dialogue, held a phone conversation at the request of U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin on Saturday morning.
During their talks, the two sides had constructive discussions on each other’s core concerns in the “phase one” deal, and agreed to maintain close communication.
So, where does it leave us?
As always a very good question.
The reality is that for the umpteenth day, week, and month in a row we are at risk, or reward, from the trade war and where talks head. My sense is still that it is in both sides interests for a deal to be done. China is struggling economically and President Trump needs to square away agricultural purchases so he doesn’t have to spend too much time, energy, or money in those states he carried last time and would hope that purchases retore to his side in the 2020 election.
That said, Barrack Obama’s intervention in the 2020 Democrat campaign screams volumes about the drift to the left and the unelectability that may come with it for the Democratic candidate. So maybe President Trump will again do better than we all think possible – as candidate trump did in 2016.
Whatever the outcome, this President sees the stocks market as integral to his narrative and he’ll do all he can to keep it elevated over the next 11 and a half months till that first Tuesday in November 2020. They used to say “don’t fight the Fed”, maybe it should be adjusted to “don’t fight the Donald”????
[Here’s a tip though, if you see the Russell 2000 close above 1610 on any day, and especially on a week, you’ll know stocks are going higher across the board. Perhaps substantially so.]
Now, it’s clear when you look at copper at just $2.63 a pound, or the US 10 year bond at 1.83%, or the Aussie dollar at 0.6819 that the positivity – or at least FOMO – on display in US and other stock markets is currently lost on other assets when it comes to any real and genuine expectation about a bounce in the global economy. That makes sense global weakness is about more than just trade wars.
You can see that in the still crook state of the Citibank Economic surprise indexes for the globe, G10, Emerging markets, and especially China – though Europe’s economic surprise index is climbing back toward zero from deeply negative levels just a month ago. Maybe that’s an important part of the Euro’s bottoming right on the 61.8% retracement level of the recent rally near 1.0995. 1.1060/70 and then 1.1110/20 which is the key.
In so many ways there are not a lot of catalysts other than trade this week till Friday’s release of the flash PMI’s around the globe. We’ll have RBA and Fed minutes, a few speeches from central bankers, but we are likely to be dominated by talk of trade.
And, as Larry and Tom highlighted at the very start of this week’s piece. Price is everything right now, for some it always is, but in the echo chamber of Twitter and momentum following style that myself and others use as our trading selves, it is going to be key to the outlook. For the moment – and unless or until the trade truce breaks down – dips seem likely to be well supported. That means bonds should drift a little higher, gold will face resistance, the Aussie should do okay, the Euro too, maybe even teh Yuan and Sing dollar too.
Now. it’s worth noting my “buy stocks wear diamonds headline was facetious”, it echoes what a sales guys used to say to me about selling the Aussie dollar a couple of decades back. So, unless we see copper back up and through $2.73 we’ll know regardless of the rally in the US and other stocks many traders just aren’t buying the narrative.
Have a great week.
@gregorymckenna on Twitter