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.

Advertisements
Posted in Uncategorized | 2 Comments

Inflation Is Here, Get Used To It

I stopped to grab a burger in Marin County today and was kind of shocked to see the following posted on the front door.

 

Apr24_In and Out

 

That is a pretty steep starting wage for nonskilled labor, and $5.00 more than the California minimum wage.

In-N-Out does pay their employees well.  The private  burger chain pays store managers an average yearly salary of more than $160,000 with no college degree or previous management experience required.   Facebook engineers soon to be flipping burgers.

Nonbinding

It is clear the minimum wage in California is nonbinding — that is irrelevant — and all the bluster about raising it would cause unemployment is just that, bluster.

During softer economic times, when the minimum wage is binding, the story changes.  Not now, however.

Passing It On

Nevertheless,  it did feel prices have risen for a burger, fries, and soda since the last time I was in an In-N-Out.  I think it cost me around $8.50 today.

Does anyone remember the days of a $.35 Big Mac?

Real Minimum Wage Higher 

Here is what is interesting about that $16.00 per hour offer.

In 1980, the minimum wage was $3.10 per hour, which equates to $9.94 in today’s inflation-adjusted dollars.    The minimum wage is $11.00 in California, so a slight increase in the real wage.

If In-N-Out is forced to pay almost 50 percent above that to attract decent burger flippers and the company can pass it on in higher prices,  inflation cometh is here, folks.

Other firms will have to pay higher wages to keep and attract their workers if In-N-Out is going to start bidding up the labor market.

We are happy for the entry-level workers, high school, and college kids that now have a higher return on their labor.   However, that is only half the story.

Many of the lower paid workers are not entry-level.

Some,  reemployed from much higher paying jobs, some are seniors who cannot afford retirement.

We suspect, though wages are raging at the lower end,  companies are laying off older expensive workers and hiring younger cheaper workers to keep labor costs in check, and is one reason why the official wage numbers are not spiking.   We are not certain on this and have to further research it.

Wealth Gap

We haven’t even discussed the pornographic income and wealth gaps,  and will leave that for another day.

But just imagine, if you will,  the inflationary pressures the economy would be experiencing if a decent chunk of the income and wealth generated over the past ten years actually had found its way to those with higher propensities to consume?

Wealth Without Production = Inflation 

If wealth without work is one of Ghandi’s  seven deadly sins, paper wealth without production that is consumed is surely inflationary.  Go no further than than the real estate market to confirm this thesis.

How ironic it is the global central banks that have printed trillions over the last decade to generate the asset inflation to stimulate demand to keep the global economy afloat have not suffered the inflationary consequences of their actions.  At least, not yet.

The rich have become richer and spend proportionally less, and the poor have become poorer and cannot spend more.

Inflation

Rents and housing prices are skyrocketing, though maybe not in Manhattan.

Food prices are rising.

Gas prices are spiking.

My Verizon bill suddenly spiked $150 per month with new surcharges, so off to Sprint.

Moreover, there is no labor to rebuild the housing market in our fire-ravaged county.

So, of course, there is no inflation.

And how the heck do you correctly measure inflation with dynamic pricing anyway?

Do you have any question the methodology the BLS will or is using?

The Disneyland resort raised prices over the weekend, several months before the park plans to unveil a remake of its boardwalk-themed area at the California Adventure Park.

The prices rose the highest for annual pass holders, up as much as 18%. Daily tickets rose nearly 9%. By comparison, the consumer price index rose 2.5% in the 12 months ending January 2017.

Daily tickets for the Anaheim theme parks vary in price, depending on daily demand.A one-day, one-park adult ticket for Disneyland or California Adventure remains $97 for low-demand days, such as weekdays in May.

A ticket for regular-demand days is $117, up from $110. The price of a ticket on peak-demand days is $135, up from $124.  – LA Times,  Feb 11, 2018

Spiking Bond Yields

Why would bond traders ever bid the 10-year over 3 percent?

Sometimes the crowded trades are right.   Higher deficits,  the Fed now a yuuge net Treasury seller, and foreign buyers on strike, and then higher inflation.

Flatter yield curve?

Good luck on that one unless the stock market suffers a 1987-like crash.

Posted in Equities, Food Prices, Inflation/Deflation, Uncategorized | Tagged , | 25 Comments

JFK-Trump S&P Tracking Like A Tomahawk Cruise Missile

We had several requests after the close to update the JFK-Trump S&P analog given today’s ugly market.

Apr24_JFK_Trump

The analog continues to track like a Raytheon tomahawk cruise missile, acting with the precision as if its  guided with the same Digital Scene Matching Area Correlation navigation system as the tomahawk.  Sorry for the military metaphor.

Apr24_Tomahawk

Trading Day 366

Today marked the 366th trading day since the November 8th election of President Trump, and both S&P’s are only 60 basis points apart in terms of their relative price performance.

What is more amazing is how they have tracked so closely on a timing basis since the correction in early February.    The Trump S&P made a swing high on Day 363 (last Friday) while the Kennedy made its swing high on Day 364.    As the chart illustrates,  the market turned down right when the analog indicated it would.

Time To Buckle Up

The analog also illustrates the market is about to get very hairy and scary over the next 40 trading days into late June.   The chart illustrates a further decline of around 23 percent is in store over the next few months.

Can’t say with certainty the analog is going to continue to track but,  hey, it is working like a champ so far.

Incoming

Apr24_JFK_Memo2

 

Now something for the critics.

We posted this chart yesterday of the Trump-Reagan S&P analog.

Apr24_Reagan_Trump

Not even close.

We have taken a lot of incoming from critics who argue that “if you overlay any two charts they will always appear correlated.”  Complete freaking nonsense!

It is true most financial and economic time series usually move in a positive upward trend, and the data are often nonstationary.  That is  by their very nature, they will move together in the same upward direction, mainly due to inflation.

We suspect that is where the critics derive their main argument.

Nor did we fit or tinker with dates to force the puzzle to fit.  The start day is election day, punto!

1929 and 1987 Analogs

Moreover, some of our friends prefer the 1929 or 1987 analog rather than the JFK 1962 chart.    We take their point, but……. the 1987 bear market was over, from peak to trough, in just 39 days – August 25 to October 20, 1987.

In 1929, the market peaked on September 3rd and fell 32 percent before Black Tuesday, which sliced another 11.7 percent off the stock market.  The stock market was thus already in a vicious bear market before the crash.  Furthermore, that market didn’t recover the September 1929 high until 1954!

Both these markets significantly differ in character from the 1962 bear market and the current corrective phase the S&P500 now finds itself in.

Stubborn Market 

Today’s market has been very stubborn to the downside and is taking its time to take out the February 9th low.  In fact, today marked the 50th trading day since making the February low.

Extremely stubborn, just as the 1962 bear was, which took 20 days to take out the initial low, and almost 90 trading days from the December peak to before gathering some real downside momentum, which began in late April, right about now to be exact.

We may or may not be in a bear market and will stick with JFK analog as long it is working, and boy is it working.   Stay tuned.

History Rhymes

Finally,  we love the rhymes of history.

Just as President Trump now is, President Kennedy was also consumed with negotiations with Korea on this very day in 1962.  Not with North Korea, however, but with South Korea and Japan.

He was pressing hard for an agreement between Japan and South Korea to resolve their long-standing grievances.

JFK April 24, 1962 Memo On Korea

Check out the memo from JFK to his Secretary of State, Dean Rusk, dated April 24, 1962.

Please do us, and yourself,  a favor and take the thirty seconds to read it.  We will take it as your payment for our research.

It it written by President Kennedy and will provide you with a quick glimpse into his sharp intellect, and savvy political and diplomatic skills.

Apr24_JFK_Memo1

Apr24_JFK_Memo2

We hope President Trump is as knowledgeable, prepared, and savvy as JFK heading into the upcoming summit.  And if only he had Dean Rusk at his side.

Posted in Economics, Equities, Uncategorized | Tagged , , , | 13 Comments

Why Google Is A Short

We live in a social media economy.

Many of our largest companies are in the social media space, such as Google and Facebook.   What exactly do they produce?  Not cars, not planes, not trains.

They have strange business models as they are not directly compensated for their product, but indirectly are paid for the content or platform they provide for advertisers and mind benders.   Then there is selling your, what you thought was private, data to the highest bidder.

Moreover, social media probably generates negative productivity.  We read some time ago the average American spends 40 minutes per day playing Farmville.   How does planting virtual corn add to the GDP?

Though we are more ambivalent about Google, Facebook is doing some severe psychological damage to an entire generation, including my 15-year daughter.   They spend much of their time competing with trophy photos loaded up on Instagram.  Never gonna win that game, which leads to increased anxiety and depression for an entire generation.

The Google Short

That brings us to the Google (we are old school and can’t bring ourselves to call it Alphabet) short.

Imagine when a politician has his/her epiphany that all those porn searches they have done over the years on Google are stored somewhere and could be hacked and released to the public?  That will ignite a prairie fire of potential legislation, which will spread faster than you can say SNAP.

We would not doubt the mantra of the next presidential campaign will morph from “lock her up” to “shut them down.”

The social media economy is in deep trouble, folks.

Posted in Equities, Uncategorized | Tagged , , | 12 Comments

Quality Of Earnings?

Rosie is a bear but a credible bear, and not a perma-bear.

The financial engineering game ends when the government starts to play.

Posted in Earnings, Uncategorized | Tagged , , | Leave a comment

This Is NOT The Reagan Stock Market

Facts do not matter anymore.  Opinions are now facts.  We truly live in dangerous times.

Reagan And Trump Stock Market

We were stunned by an article posted on the CNBC website over the weekend, The Trump stock market looks a lot like Ronald Reagan’s, Ralph Acampora says – and that may mean trouble.

Are you fricking kidding me?  Nothing could be further from the truth.

The Reagan market looks like the Trump market?   The Trump S&P500 is almost 40 percent above the Reagan S&P after 365 trading days from the election.

We do agree on the last part of the headline that stocks are headed for trouble, however.

 

Apr23_Reagan_Trump

Presidents And Stock Markets

We pride are ourselves as students of presidential stock market cycles.  We have posted several pieces on stock market returns during presidential terms over the many years. See here and here and here.

JFK-Trump S&P500 Analog

Our latest venture  has been constructing and tracking the stunningly tight JFK-Trump S&P500 analog.  We did not just stumble upon the analog with a feeling or a religious epiphany, randomly deciding to “overlay two charts on top of each other” (a common criticism of analogs)  but we crunched 70 years of data searching for similar volatility shocks to the one the market experienced in early February.

We found three:  1) The Eisenhower heart attack in 1955; 2) the 1987 stock market crash, and 3) the 1962 “Kennedy Slide” or bear market.   We dismissed the Eisenhower shock as it did not even lead to an official correction, and the 1987 bear market — peak to trough — was over in just 39 days.

Apr23_JFK_Trump

Is The Trump Market Similar To The Reagan Market?

Absurd. Take a look at the data in the first analog and you decide.

The JFK-Trump analog is only 84 bps points apart with respect to price-performance 365 trading days after the election whereas the Reagan-Trump analog illustrates an almost 40 percent divergence.

Apr23_Acampora

(Click here for interview)

We love Ralph, but we are having trouble reconciling his comments to CNBC.

“In fact, if you look at the chart you will see Ronald Reagan had a six-month honeymoon.  It lasted…I think the percentage gain was roughly about ten percent.” – Ralph Acampora

Ralph seems to refer to the Dow instead of the S&P, so we included it in the analog.

As the chart illustrates, Reagan’s S&P500 peaked 18 days after election day, rising 8.9 percent bolstered by the surprise November 4th electoral landslide.  The S&P then fell 27.15 percent over the next 430 trading days, bottoming on August 12, 1982.

The Reagan bull market ignited that August day, taking the S&P500 up over 61 percent through 1983 and 179.86 percent by the end of his two terms.

Much of the stock volatility during the first 18 months of Mr. Reagan’s first term was due to very tight monetary policy, a deep recession, and volatile interest rates.

On election day, for example, the yield on the 10-year was 12.46 percent.  The yield continued to rise, finally peaking at 15.84 percent on September 30, 1981, almost a year before the economy emerged from recession and the August 1982 stock market bottom.

Reagan’s Tailwinds, Trump’s Headwinds

We posted a piece in December 2016 comparing the macro initial conditions between the Reagan and Trump administrations on the eve of their presidencies,  Reagan v Trump Macro Initial Conditions, listing several indicators,  including monetary, oil prices, and demographics.  Our conclusion was a Reagan-like bull market is very unlikely during Trump’s tenure.

 

macro-conditions_reagan-v-trump_dec26

President Reagan also got his recession out of the way early in his administration

Segue To North Korea

Finally, this exercise reminds me of conversations I have had with friends about the upcoming U.S.-North Korea summit.  As you have probably read, we are worried the U.S. is going to be played by the NorKo’s and Chinese like the dueling banjos in Deliverance.

What always comes up is whether President Trump’s hardline and bluster toward Kim Young Un has worked and brought North Korea to the table.   I have tried to present the facts, as, say, a CIA desk officer at the U.S. embassy in South Korea (still without an U.S. Ambassador, BTW) would.

Sure, I have my biases and confess I’m not a big fan of President Trump’s policies or his behavior.

But here are the facts:

In the first eleven months of the Trump Administration, the North Koreans engaged in twenty missile tests, some nuclear,  compared to only eight during the entire two terms of President Obama.

During Trump’s first year in office, North Korea conducted more than twice as many ballistic missile tests (20) as it did during the first year of Barack Obama’s presidency (8).  – Foreign Affairs

I maintain the president’s bluster and the painting of many red lines baited Kim into mocking and ultimately crossing them, twenty times, to be exact.  Two of the six missiles fired by the North Koreans over Japan occurred in 2017.

It was during these last missile and weapons tests,  North Korea probably obtained their big nuke and ICBM delivery system.

Kim is now finally prepared for nuclear chastity.  That is after the hermit kingdom has lost its thermonuclear virginity.

North Korea has promised to end all its atomic and missile tests – but experts warned last night that the dramatic pledge may mean the rogue state has already perfected its nuclear weapons system.

Dictator Kim Jong Un’s surprise announcement comes prior to a planned summit with President Donald Trump next month.

But while some have greeted the offer as a welcome sign of peace, a leading ex-CIA analyst said the Communist despot may have already achieved his ambition of creating a weapons system capable of hitting any target in the US. – Daily Mail

North Korea now comes to the table stronger than ever and most likely with some sort of secret deal in pocket with the Chinese.

Without equivocating, it’s fair to say that both the declarations on nuclear testing and on halting the tests of ICBMs are significant concessions. Specifically, Kim announced that North Korea will “discontinue nuclear testing” and that the Punggye-ri site will be “dismantled to transparently guarantee the discontinuance of the nuclear test [sic].” On ICBMs, Kim simply said that no “inter-continental ballistic rocket test-fire” would take place after April 21, 2018.

While significant, we shouldn’t be fooled into thinking that these concessions are being made out of a position of weakness or as a necessary show of bona fide goodwill to South Korea and the United States before the upcoming summits. Kim’s rationale for doing away with the nuclear test site was to underline that North Korea had already successfully come up with the nuclear weapons designs it needed. – Daily Beast

There were many articles over the weekend on the wisdom of even holding the summit.

 White House privately skeptical of North Korea’s plans to freeze nuclear testing  – Washington Post

Mr. Kim’s moves are also unsettling officials in the U.S., Japan and China. Some suspect he is merely posturing in advance of the meeting, as well as before a separate one with South Korea’s president. Others worry that his gestures could put Mr. Trump on the defensive in the grinding negotiations over the future of North Korea’s nuclear weapons.  – NY Times

Trump tempers expectations on North Korea  – Politico

Both leaders go into the meeting impulsive, unprepared, and the U.S. is way understaffed in its expertise and professional diplomatic corps.

Moreover, both sides don’t even seem to be in the same zip code in terms of perspective, motive, and expectations.

The North Koreans seem to believe that their nuclear breakthroughs forced Mr. Trump to accede to a leaders’ summit meeting, something they have long desired as a way to prove themselves a peer of the major powers.

But American officials have said Mr. Kim was the one forced to the table, compelled there by American sanctions and military threats.

North Korea’s statements suggests that the country sees itself as on the verge of forcing the world to accept it as it is, finally securing its long-term survival.
– NY Times 

Let’s just say we are not expecting a Reagan-Gorbachev breakthrough.

By the way,  our friends seem to think Trump deserves the Nobel Prize based on their feelings, fantasies,  and the spin that is swirling about the ether and Twittersphere.

We sincerely hope they are correct,  but we fear disaster based on our observation of the facts.  Both sides are about to engage in a high-wire act without a safety net.

Has the market priced the risk?

And the Reagan stock market is the Trump stock market.

 

Posted in Equities, Geopolitical, Uncategorized | Tagged , , | 11 Comments

Big Week For Earnings

Apr22_Earnings

Image | Posted on by | Tagged | Leave a comment

Week In Review – April 20

Bond Yields, Bond Yields, and More Bond Yields 

The U.S. 10-year closed at its highest yield on a weekly basis since year-end 2013.

A weekly close above 3.03 percent signals big trouble ahead.   The confluence of fundamentals – i.e., inflationary pressures —  and technical issues, including ballooning budget deficits,  the end of QE, and a foreign buyers strike are driving rates higher.

We doubt the pretty profit picture, which is expected and to some extent already should be discounted, is going to be able to offset the headwinds of higher interest rates.

Head & Shoulders Bottom

The following chart looks like a classic head and shoulders bottom in the 10-year yield on a weekly basis.  A measured move would take the 10-year up to…ugh…3.92 to 4.73 percent depending on where you measure the shoulder.  Either way, Gulp!

The economy would surely break before rates move that high but we could be moving into a period of inflation/stagflation if the trade war accelerates and takes hold.

Week_Chart1

Weekly_Recovery1

 

Weekly_Recovery2

 

Weekly_JFK_Trump_Analog

 

Weekly_Table

Posted in Uncategorized, Week in Review | Tagged , , , , , , , , , | Leave a comment

Sector ETF Performance – April 20

ETF_D

ETF_Week

ETF_Month

ETF_YTD

Posted in Sector ETF Peformance, Uncategorized | Tagged , | Leave a comment

Global Risk Monitor – April 20

RiskMon_1

RiskMon_2

Posted in Daily Risk Monitor, Uncategorized | Tagged , , , , , | Leave a comment

President Reagan On The ’87 Stock Market Crash

President Reagan certainly understood the nature of markets.

That is they do whatever they are going to do, sometimes without a fundamental rhyme or reason.   Very different from the current occupant of the White House who seems to think every uptick in the S&P is all about him, and he is not afraid to take credit for the upside and tweet about it.

Before going to President Reagan’s  comments about the October 19, 1987 stock market crash,  we first review some data, which lends light on the 1987 crash.

 

Apr21_S&P_1987

The S&P500 had just completed a massive run from September 1985 before peaking on August 25, 1987, moving up almost 87 percent in less than two years.   That qualifies as a bubble in our view.

Yuuuge Decline In Interest Rates

Much of the move was attributed to a sharp drop in interest rates.

The 10-year Treasury yield fell almost 350 bps in less than a year before making a local bottom in September 1986.   Interest rates then began to move sharply higher, utterly roundtripping almost the entire move by the day of the crash.

The 10-year yield had risen 300 bps year-to-date on October 16th, closing back above 10 percent, increasing almost 150 bps just since the S&P peaked on August 25th.

The S&P500 was already down 16.33 percent from its high before crashing on October 19th.  Markets rarely fall out of the sky and usually signal something big is coming by a sharp rise in volatility.    Think of a Richter scale before a volcano blows.

Apr21_Richter Scale

This is why we take the early February volatility shock seriously and a signal of regime change, and give a much higher probability for a potential major price reversal than most in the market are anticipating.

4744572-George-Soros-Quote-Short-term-volatility-is-greatest-at-turning

Finally,  the S&P500 fell 23.43 percent from the October 16th Friday close to the intraday low on Tuesday before a mysterious buyer stepped into to the Major Market Index futures contract at 12:38 p.m, setting the stage for one of the most powerful rallies in history.

We believe the 1987 stock market crash was an accident waiting to happen due mainly to a toxic cocktail of a severely overbought market and rising interest rates.  All that was needed was a buyers strike coupled with some catalysts or reasons to bail and take profits.   The same reasons may or may not have mattered if not for such a toxic cocktail.

Given the nature of the New Economy, we seriously doubt the government will allow such a similar short-term crash, say, 15-25 percent,  to occur again.   We now have no doubt  the Fed will step up and announce they will do whatever it takes and become the buyer of last resort to keep the market from melting down in one or two days.

Why?   Because it would be the end of the world and they surely know it.

The thought of the Fed directly purchasing stocks as the Bank of Japan now does contradicts everything  Larry Kudlow’s dictum, “free market capitalism is the best path to prosperity” stands for.

Privatizing profits and socializing major Wall Street losses  are now forever institutionalized especially given the structure of our asset driven global economy.  The “Powell put” may now have a little lower strike price than many traders would like but it is absolutely still in place.  No doubt about it.

Oy veh!   Sorry deflationistas.

Iran Again

By the way, the U.S. was also in the midst of a conflict with Iran in October 1987.

An Iranian missile struck an American-owned tanker in Kuwaiti waters today, causing a huge explosion and setting the tanker ablaze, the Pentagon said.  – NY Times,  October 16, 1987

President Reagan’s Comments

Now to President Reagan.

Asked after the close if the stock market crash was his fault, the President delivers the ultimate money quote, in our book:

The President:  Is it my fault? For what, taking cookies to my wife?  – President Reagan,  October 19, 1987

Profound.   We can learn from the Gipper to refrain from trying to explain or attribute daily stock market moves to certain factors.   Any one of the catalysts we deem moved the market in a certain direction on a given day could have moved it 180 degrees the other way with a different set of technical conditions.

Reagan truly understood  market noise.

Full Transcript Of October 19, 1987 Informal Exchange With The Press

Here is the full transcript with reporters that day, October 19, 1987.

Stock Market Decline

Q. Mr. President, are we headed for another great crash?

Q. What about the stock market?

Q. Are we headed for another great crash?

Q. Stock market.

The President. Oh, the stock market. Well, I only have one thing to say: I think everyone is a little puzzled, and I don’t know what meaning it might have because all the business indices are up. There is nothing wrong with the economy, though.

Q. Panic.

The President. What?

Q. Panic, how—

The President. Maybe some people seeing a chance to grab a profit, I don’t know. But I do know this: More people are working than ever before in history. Our productivity is up. So is our manufacturing product up. There is no runaway inflation, as there has been in the past. So, as I say, I don’t think anyone should panic because all the economic indicators are solid.

U.S. Reprisal Against Iran

Q. Sir, about the Gulf—some people seem to think that the U.S. response was very, very, very minimal.

The President. Well, since so many of you keep calling it an oil derrick of some kind or platform, no. It was a command and control tower with radar and the ability to track shipping through the Gulf. And, so, we thought that it was an appropriate and proportionate response to their missile attack on a freighter, which wounded some of our people.

Q. What do you think the market’s going to do tomorrow? What about tomorrow?

Q. What’s the message to Khomeini?

Q. Are we now in a war with Iran?

The President. No, we’re not going to have a war with Iran. They’re not that stupid.

Stock Market Decline

Q. What about the market? Tomorrow will it go down again?

The President. I don’t know. You tell me.

Q. Is the market your fault?

Q. Is it your fault? she says.

The President. Is it my fault? For what, taking cookies to my wife?

Q. Reaganomics.

The President. I just told you. Good Lord, we reduced the deficit over last year by $70 billion. And all the other things I’ve told you about the economy are as solid as I told you. So, no, I have no more knowledge of why it took place than you have.

Q. What’s the message to Khomeini?

Q. Well, what would you tell the small investors?

The President. What?

Q. What would you tell the little old lady who lost money today?

Q. The little old ladies who lost their shirts.

The President. I don’t know of anyone. Are you talking about a specific case?

Q. I lost mine.

Q. Me.

Q. This one.

The President. Wait a minute! How about how many people must have sold out in order to get a profit because they bought it back before it was ever this high? I’ve got to go to the hospital.

Q. Give our best to Mrs. Reagan.

The President. Thank you, Andrea [Andrea Mitchell, NBC News]. That, I will do. She’ll be coming home soon.

Q. What’s your message to Khomeini?

Q. Invest in our stock market.

The President. If I really gave it to you, you wouldn’t be able to print it.

Note: The exchange began at 5:04 p.m. at the South Portico of the White House upon the President’s departure for Bethesda Naval Hospital,  

 

Posted in Equity, Uncategorized | Tagged , , , | 19 Comments