The Market Radar

We anticipate, monitor, and comment on market moving global economic and geopolitical issues.  No dark side brooding, no wanting the world to end, no political rants.  Traders, investors, policymakers, or market observers can’t  afford to ignore us.

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Why Arming Teachers Is A Really Dumb Idea (In Pictures)

Sometimes you need a crayon to illustrate a simple point.  We will use pictures.

Where is your market?

AR15_Feb24.png

And one reason why we have this:

Police_Feb24

Looks like the useful idiots in Washington are still taking their dumb-dumb pills.

Pills_Feb24

 

Dum Dum_Feb24

Queen Victoria

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Sector ETF Performance – February 23

ETF_D

ETF_WETF_M

ETF_YTD

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Global Risk Monitor – February 23

RiskMon_1

RiskMon_2

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Jumping On The Comeback Karl Train

Wow!  Seeing more of Karl since our post:  Karl, The Comeback Kid?

Bloomberg just retweeted this:

 

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Manhatten Rush Hour Before Uber

Rush Hour_Feb22

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The Coming “Socialist Wave” – NRA

You heard it here first, comrades!

On Tuesday night we posted, Karl, The Comeback Kid?

We intended to point out  what may be coming over the next decade as job-destroying automation through artificial intelligence and robotics accelerates and drives the younger generation to the unemployment line and further political left.

While everyone is looking right at the rise of populist nationalism, they’re about to be hit with a 2×4 in the face from the left.   Called for the them to Wake The F.  Up.

Our recommendation to the one percenters and the comfortably numb retired baby boomers, who have bequeathed to and saddled the younger generations with massive pension and public sector debt liabilities?

You better Wake The F&*k Up!  – Global Macro Monitor

We do not mean the hard left socialism of Cuba and Venezuela but the softer gentler Nordic kind, as in Denmark, Norway, and Sweden.   That is capitalism with a vast and wide social safety with higher taxes.  Think Bernie Sanders.  

The swing left, in our opinion, will be the culmination of the Clash of Generations, when millennials wake up and realize they have been screwed.

No political statement, no agenda, just an observation and inference from the data.

Today’s NRA Rant

Now, others are jumping on the Comeback Karl train but with an agenda, however.

 

NRA_Feb22

 

The head of the NRA, Wayne LaPierre, unleashed a tirade today at the Conservative Political Action Conference (CPAC) warning of a “socialist wave” that is coming as a result of the Florida high school shooting.

NRA Leader Warns Conservatives Of ‘Socialist Wave’ In Wake Of Shooting

Just over a week after 17 people were killed at Parkland, Fla., high school, National Rifle Association executive vice president and CEO Wayne LaPierre gave a fiery, defiant speech at the annual Conservative Political Action Conference, or CPAC, on Thursday at the National Harbor in Maryland. LaPierre defended Second Amendment rights and warned of a “socialist agenda” intended to strip firearms away from law-abiding citizens.  – NPR

We call red-baiting.  We call utter bullshit.

Red-baiting, also reductio ad Stalinum, is an informal logical fallacy that intends to discredit the validity of an opponent’s logical argument by accusing, denouncing, attacking, or persecuting an individual or group as  communistsocialist, marxist  or anarchist, or sympathetic toward communism, socialism, marxism or anarchism. In the United States, the term “red-baiting” dates from at least 1927. In 1928, black-listing by the Daughters of the American Revolution was characterized as a “red-baiting relic”. It is a term commonly used in the United States, and in United States history, red-baiting is most often associated with McCarthyism, which originated in the two historic Red Scare periods of the 1920s (First Red Scare) and 1950s (Second Red Scare).  In the 21st century, red-baiting does not have quite the same effect it previously did due to the fall of Soviet-style Communism but some pundits have argued that notable events in current American politics indicate a resurgence of red-baiting consistent with the 1950s. – Wikipedia

Dog whistling to conflate Stalinist communism with the lefty leanings of the younger generation to scare and manipulate the body politic or to “shore up the base” is such nonsense and wouldn’t matter if it didn’t.

What else would you expect in our new age of McCarthyism?  Where gaslighting,  from both the right and the left, is the new tool of political persuasion.

Welcome back, Karl.  It has been awhile.

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Textbook Progression To A Bear Market

OK.  Not a bear market quite yet.

The official level of the S&P500 for the current sell-off to morph into a bear market (down 20 percent from local high) is 2298.30, down 14.92 percent from today’s close.  The official correction level, 2585.58, was hit and broken on February 8th.

We believe there will be a stock bear market in 2018 but less confident on its depth and length, however.   We will turn that page, if, and when, we get there.

Key Data and Levels

The following table is updated with some key economic indicators and S&P target levels.

 

Table_Feb21

Recall in our earlier posts (see here and here), there have been three other massive volatility shocks since 1950,  similar to the one the S&P500 just experienced.

1) 1955: Ike’s heart attack;  2) 1962:  the “Kennedy slide” or JFK bear market; and 3) 1987:  the “crash” bear market, which lasted only 38 days.

We threw out Ike’s heart attack as it was not a prelude to a bear market.  The S&P500 recovered shortly after the sharp Monday sell-off after President Eisenhower had a heart attack on the 8th hole at Cherry Hills Country Club the prior Saturday afternoon.

Bear Markets Do Not Happen Without Recession?

To that, we say, poppycock!  Time to tune out the cheerleaders.

The data are clear.  The U.S. economy thrived during the 1962 bear market, growing at more than 6 percent, on average.  The economy grew at 3 ½  percent in 1987.   No recession, not even close, in those two bears.

The Great Moderation

Before the early 1980’s, the U.S. economy experienced much higher short-term volatility. The FRED table illustrates the dampening of volatility over the past 30 years, though at much lower growth rates.  Economists refer to this recent period as The Great Moderation.

Debt Concerns

The current U.S. government debt-to-GDP ratio is more than double what is was in both the 1987 and 1962 bear markets.  It is the crux of the current sell-off, in our opinion.

We sense that the global markets are growing increasingly concerned about high debt levels in a rising interest rate environment.   Couple that with Washington’s fiscal promiscuity and extreme valuations and overbought conditions, and the ingredients of a bear market are baked in.  It is also probably why the dollar is so weak.

We can make a very bearish case with debt doom loops and all kinds of macro instability, but won’t go there until price discovery takes us there.

Nevertheless,  keep these words on your radar:  fette Schwänze, colas gordas,  grosses queues, or in simple English,  Fat Tails.   As volatility spikes,  girth increases.

Recent Price Action

Notice how the market traded today.  Up big then reversed as the 10-year yield spiked through 2.95 percent.

Interest Rates

Interest rates were not a concern in 1962 as the data show the 10-year yield declined 30 basis points during the bear market.  Not the case in 1987,  however, where  rising interest rates and a weak dollar culminated in the October 19th global stock market crash.

Some possible reasons for the stock market crash of 1987 and for the rapid psychological shift of the market participants:

  • rapidly increasing short term US interest rates (the annualized yield of 3M US Treasury Bills increased from 5.30% on 20.01.1987 to the high print of the year: 7.19% on 14.10.1987 – an increase of 189 basis points)
  • rapidly increasing long term US interest rates (the yield of 30Y US Treasury Bonds increased from the low print of the year: 7.29% on 09.01.1987 to the high print of the year: 10.25% on 19.10.1987 – an increase of 296 basis points)
  • weakening US dollar (=falling against most major foreign currencies)
  • deteriorating US current account deficit
  • escalating US government debt
  • very high price-earnings-ratios (P/E)
  • very low dividend yields
  • very bullish investor sentiment figures (= too much optimism by investors)
  • deteriorating “market breadth” (e.g.: weak Advance-Decline-Line)

Source:  www.sniper.at

Wow,  sounds eerily familiar, no?

Market Recovery Falters

The S&P could not hold the key 61.8 percent Fibo level at 2742.92 nor 2728.08, its 50-day moving average.

Moreover, the index closed today just below the 50 percent Fibonacci retracement level.

Normal Path To A Bear Market

At Friday’s intraday high,  the index had retraced 65.18 percent of its first leg down, very close to the 1962 (76.42 percent) and 1987 (69.49 percent)  retracements (see table).

In other words, last week’s recovery was a normal bounce off the initial lows on the path to a bear market.

Levels To Watch

The next critical levels on the downside for the S&P is the 38.2 percent Fibo at 2662.64 and 2653.31, the 100-day moving average.

On the upside,  2702.78, the 50 percent Fibo.   Then some clustering in a range of 2730-2755:  the 50-day at 2728..08; the 20-day at 2737.92; the 61.8 percent Fib at 2742.92; and, most important, Friday’s high at 2754.42, the new marker.

Also watch the bearish cross as the 20-day moving average trades through the 50-day, which is not far off.

A 1962-1987 Hybrid Bear Market?

Though the S&P500 has the same theme, set-up, and backdrop as the JFK post-election rally and bear market in 1961-62,  the fundamentals drivers of the current correction are very similar to those of the 1987 rout (see above).

JFK_Trump_Feb21

As of today’s close,  the Trump and JFK S&P500 sit right on top of each other,  0.68 percent apart, 323 trading days after election day.

Recovery

Though the 1987 bear market bottomed the day after the crash, the S&P500 did not recover its August 25, 1987, high until July 21, 1989.   It could be sometime before the index makes a new high.  Or maybe not.

Stay tuned.

Appendix:

Economy_Feb21

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Karl, The Comeback Kid?

Why do we think the world is about to see the resurrection of the “comrade culture club” over the next ten years?

Make no mistake; there will be a visceral political reaction to the coming acceleration of  labor disrupting technology.  We got a little taste of it in the 2016 election.

Just wait until it hits the doctoring, lawyering, and accounting class.

To take an example, COIN (contract intelligence) interprets commercial loan agreements that previously consumed 360,000 hours of lawyers’ time per year. ROSS intelligence is another example, combining a simple, Google-like search system to find up-to-date cases, law and extensive advice in seconds, by quickly sifting through databases of legal history. — marketMogul

Karl and Friedrich wrote about it over 150 years ago:

On disruptive labor destroying technology (AI and the robots are coming):

Constant revolutionizing of production, uninterrupted disturbance of all social conditions, everlasting uncertainty and agitation distinguish the bourgeois epoch from all earlier ones.  – Marx and Engels

On free-trade and globalism (protectionism on the rise):

The need of a constantly expanding market for its products chases the bourgeoisie over the whole surface of the globe. It must nestle everywhere, settle everywhere, establish connexions everywhere. – Marx and Engels

Then there are the political leanings of the millennials:

Millennials opt for socialism over capitalism

Given the choice, most Americans would opt for a capitalist country. However, one third would prefer to live in a socialist nation. Millennials are the leading force behind this preference with more than four in ten opting for socialism.  – YouGov

Socialism_Feb19

Absolutely stunning.  More than 50 percent of American millennials prefer to live in a socialist or communist country.  Can you blame them?

Debt is a happiness killer. None of us can be truly happy if we’re saddled with debt.

…At the present time, the average American household with student debt owes about $49,000. Graduates in their twenties spend more than $350 per month, on average, on student loan payments and interest. Since the average “entry-level” job was worth about $50,000 a year in 2016 for new graduates, “truly average” college grads in America can expect to see their earnings garnished by between eight and 10% for roughly ten to twelve years after they graduate. —  Forbes 

Remember Bernie?

Therein lies the spectre that will haunt the investor class over what is sure to be a tumultuous next decade.

Of course, we are not predicting America is on the verge of a communist revolution.

Nordic Capitalism Cometh

We do believe, however, if things continue as they are,  and there is not a major political and economic reset, the move to Nordic capitalism, or Nordic socialism  — call it what you will —  is a done deal in the United States.

Time To Wake Up

Look at the rising political power of the high school students over the past week, now revolting over the country’s revolting gun laws.   It feels like a watershed moment to us, and they smell it, a chance to change the culture.  They and their older brothers and sisters are the future.

Moreover,  what do you think their reaction will be when they have the epiphany the baby boomers have screwed most of them economically?

One should always be cognizant that an increase in the relative price of assets (prices to income), and housing, in particular, is generally a transfer of wealth from the younger generations to the older generations.

The $112 trillion question is what generation will take the hit?  Will it be the baby boomers as their asset prices mean revert to income or the younger generations who are forced to pay up for the overvalued assets?  Or will a leveling of the playing field take place through the political system?

We have been writing about the coming Clash of Generations for years now.

No Sugar Coating It

Our recommendation to the one percenters and the comfortably numb retired baby boomers, who have bequeathed to and saddled the younger generations with massive pension and public sector debt liabilities?

You better Wake The F&*k Up!

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Historical Ranking of U.S. Presidents

Happy Presidents Day!

The American Presidency was one of our favorite college courses, so we find the latest survey and rankings of American presidents (colored by quartiles) always interesting.

The following table is the 2018 ranking of U.S. presidents by historians in the American Political Science Association (APSA).   Abraham Lincoln is consistently ranked numero uno in the surveys.   President Trump ranks dead last this year.  The silver lining for the current president is that there is only upside.

President Trump and Senator Hatch do need to brush up on their history, however,   Or maybe see a shrink.

During a Thursday press conference at the GOP retreat, President Donald Trump praised Senator Orrin Hatch (R-Utah) for calling him the greatest president in American history.

“Orrin is—I love listening to him speak…he actually once said I’m the greatest president in the history of our country and I said, ‘Does that include Lincoln and Washington?’ He said yes. I said, ‘I love this guy,'” 

…A spokesperson for Hatch told Newsweek that the senator “has said that he would like to work with the president to make this the greatest presidency in history for the American people.” White House spokeswoman Sarah Huckabee Sanders confirmed Trump’s statement.  – Newsweek, February 1, 2018

The historical surveys should be read with a sense of skepticism.   President Kennedy voiced his concerns for such rankings,

…Kennedy voiced his deep dissatisfaction and resentment with historians who had rated some of his predecessors. Kennedy said: “No one has a right to grade a President—even poor James Buchanan—who has not sat in his chair, examined the mail and information that came across his desk, and learned why he made his decisions”  — Wikipedia 

 

Presidential Rank_Feb29

See here for a matrix of presidential historical rankings over time.

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QOTD: Paul Tudor Jones

“We are in the throes of a burgeoning financial bubble.  If I had a choice between holding a U.S. Treasury bond or a hot burning coal in my hand, I would choose the coal.” – Paul Tudor Jones 

(QOTD = Quote of the Day)

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