Title: 2018/06/27 Commentary: The Binary Confidence Conundrum

2018/06/27 Commentary: The Binary Confidence Conundrum

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Commentary: Wednesday, June 27, 2018

The Binary Confidence Conundrum

Once again it has been some time since we last posted, because much of the international markets context has continued to reflect the ‘indi-gestur-ion’ we explored back in the previous Weekend: In-digestur-ion and the G7 post. That was of course about President Trump’s penchant for the ad hoc ‘grand gesture’ (which we had criticized before as less than optimal in many cases) often needing to be remediated by the subsequent adjustment of a bold statement or threat. Yet each of those instances proved to be a temporary case of indigestion, with the adjustment of the misstep acting as a sort of politico-economic antacid. There were other culprits as well, like the new Italian government attempt to install a ‘euro-skeptic’ finance minister, which was also fomented a sharp bout of the international form of indi-gestur-ion’ shock. Yet, in each of these cases (and quite few others for Trump) the rapid reversal of the untenable position left equity markets back in decent shape, and the govvies less buoyant. Foreign exchange remains problematic on the differentials between steady developed economy currencies and overall weakness in emerging currencies with selective exceptions based on ‘country’ influences.

However, the progression of the overall ‘US versus the World’ trade stance of the Trump administration on everything from national security concerns to those nasty steel and aluminum tariffs is becoming more contentious… and at that leaves a significant potential for an outcome (or outcomes) that will be either very encouraging or significantly diminish current global economic confidence. Hence the split theater mask… even if the original Greek theater meaning of each was tragedy and comedy rather than economic success or failure. Muse of tragedy Melpomene actually started as the Muse of Chorus, which was the real story teller in ancient Greece rather than the actors.

After so many successful tragedies, she became associated with that dramatic form. On the other hand, her sister muse Thalia (comedy) signified ‘flourishing’ regarding the nature of her songs throughout time. Yet the relationship to laughing (or at least smiling) in modern economic flourishing cannot be overlooked.

How appropriate for our global trade outcome dichotomy: will it be smiles or cries?

[Opening graphic via abcteach.com. © 2018 All Rights Reserved.]

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2018/06/10 Weekend: Indi-gestur-ion and the G7

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Weekend: Sunday, June 10, 2018

Indi-gestur-ion and the G7

Yes, that title term is a play on words combining indigestion and gesture. It directly relates to President Trump’s penchant for the ad hoc ‘grand gesture’. We have criticized that before as less than optimal in many cases, often needing to be remediated by subsequent adjustment of a bold statement or threat. However, he is not the only culprit, as the highly disparate sides in Italy’s current far Left and alt-Right coalition have recently demonstrated. (More on that below.) Yet first it is important to note that some of the President Trump’s more unconventional or outrageous ad hoc policy announcements have had a shock effect on the global politico-economic psychology. This has more than a passing impact, as it will also influence who is willing to work in the administration of someone who is willing to indulge in instinctive, impulsive outbursts… as seen at this weekend’s G7 meeting.

And by way of self-absorption we need to allow it has been a while since our last post. Yet that is because so much has been consistent with our view that Trump’s (and others’) sometimes shocking short-term impacts on markets have amounted to nothing more than temporary disruptions (indi-gestur-ion) our perspective has anticipated.

This goes back quite some time into the ‘consolidation consternation’ that began with the long-delayed yet sharp equities correction into early February. While this is not a broad condemnation of everyone in the Trump administration, as a case in point consider the resignation of ex-National Economic Council Director Gary Cohn.

While the recent Trump machinations on tariffs and trade may work out, let’s allow for the moment that Mr. Cohn probably has a broader and more effective understanding of that area than Donald Trump. After Trump’s surprise March 1^st announcement of broad steel and aluminum tariffs, Cohn resigned the following Tuesday as Trump was still saying they would be fully applied 30 days later. As noted in our March 8^th Commentary: Trump Trade Trauma?, Cohn’s departure had been predicted since Trump’s inadequate response to violence (including anti-Semitic overtones) in the Charlottesville rally last August. Yet the March 1^st tariffs announcement seemed to be the last straw. Why?

Authorized Silver and Sterling Subscribers click ‘Read more…’ (below) to access the balance of the opening discussion. Non-subscribers click the top menu Subscription Echelons & Fees tab to review your options. Authorized Gold and Platinum Subscribers click ‘Read more…’ (below) to also access the Extended Trend Assessment as well.

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2018/05/23 Special Alert: Turkish Lira

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Special Alert: Wednesday, May 23, 2018

Turkish Lira

It is most interesting to see consistent weaker sister Turkish lira weaken still further at various points when other emerging currencies (which have also reverted to weakness over the past month-and-a-half) have attempted to stabilize at times. And the current lira weakness goes beyond just relatively weaker activity against the US dollar and other developed currencies it had seen since mid-March. To paraphrase the stock market assessment of ex-Fed Chair Alan Greenspan (and colleagues as evidenced in the transcripts from his mid-1990’s Federal Reserve), it seems at this point the Turkish lira has completely “slipped its moorings.” Yet as the Turkish government of President Recep Tayyip Erdoğan has gone a long way toward discarding various Western governmental and financial norms, it is less a surprise and more so a dilemma of how to view it.

While we will directly return to an overview of the reasons the lira is acting so weak (even so much weaker than other emerging currencies that also have reason to sag at present), first note the opening USD/TRY monthly chart. It can be enlarged by clicking on it, and also possibly more effectively enlarged and studied in the external version of it in our archives folder. The reason for providing such a broad summary view is to highlight not only the degree of lira weakness, but also sheer upward US dollar technical trend acceleration against it is now extreme. While the greenback is also strengthening against other developed currencies and especially emerging currencies on stronger US economic growth, they are nowhere as weak as the Turkish lira.

The opening monthly chart is also to establish that even on an historic view the up trendline across the SEP 2016 and SEP 2017 lows is the proper slope to then project the higher (blue dash) channel return line from the 3.9410 JAN 2017 high. This is because the lower, more gradual late-2014 through mid-2016 up trend’s (blue dash) channel return line had already been accelerated above in the low 3.60 area on the surge into 2017. This is important to confidently assess the situation on the USD/TRY weekly chart below.

And it is important to note that the reasons for the lira weakness are multifold, which is always the case for any market that experiences extensive sustained weakness.   

Authorized Silver and Sterling Subscribers click ‘Read more…’ (below) to access the balance of the opening discussion. Non-subscribers click the top menu Subscription Echelons & Fees tab to review your options. Authorized Gold and Platinum Subscribers click ‘Read more…’ (below) to also access the Extended Trend Assessment as well.

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2018/05/10 Commentary: Consternation Dissipation

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Commentary: Thursday, May 10, 2018

Consternation Dissipation  

Some might characterize the recent US equities rally (and other equities as well) as ‘surprising’. And in the context of the nervous global politico-economic environment, that could be a reasonable view. Yet once the market activity is considered in a full intermediate-term ‘macro-technical’ context, the recent return to a more aggressive near-term up trend is anything but surprising… it is in fact the only logical extension of a consolidation psychology that began with such a shocking near-term equities implosion in early February. It was necessary to consider that initial return of volatility (based in part on technical factors) from its long slumber in light of the previous, very extended overall bull trend. In that context it was quickly clear it was far more likely to be a correction than a full-blown trend reversal.

The initial early February threat to the trend was indeed scary. Yet it was also obvious by later in the second week of the month this was a very compressed and violent reaction that had held broad intermediate-term trend support (much more below along with annotated graphs.) This is as reviewed on our Evolutionary Trend View (ETV) update in the Friday February 16^th Commentary: Clearly More So 1998 Than 1987 post. The chart and major moving average projections there fully anticipated what was to come.

Yet it also had to be allowed the early February selloff had been violent enough to warrant consideration the bull trend-leading US equities were also more likely to be entering an extended consolidation. And much as the overall enthusiasm that fueled a two-year uninterrupted rise from the early 2016 last sharp correction, the recent correction was going to include worries surfacing that had not been evident during the rally.

That was also anticipated in our February 24^th Weekend: Consolidation Consternation post, including the key observation (repeated from the February 16^th ‘Clearly More So 1998 Than 1987’ post) “…especially after a particularly significant accelerated trend, markets are more likely to go into a consolidation phase across ‘time’.” And in that way the ‘consternation’ (i.e. fresh angst) was going to ensure that the US equities spent some goodly amount of time in a consolidation, with many parties expressing concern the market could go from bad to worse (than seen in early February.) Yet for all the thrills and spills, US equities never did anything more than hold lower support.

Authorized Silver and Sterling Subscribers click ‘Read more…’ (below) to access the balance of the opening discussion. Non-subscribers click the top menu Subscription Echelons & Fees tab to review your options. Authorized Gold and Platinum Subscribers click ‘Read more…’ (below) to also access the Extended Trend Assessment as well.

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2018/05/02 Commentary: Fed-ticipation II

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Commentary: Wednesday, May 2, 2018

Fed-ticipation II  

There is quite a bit of anticipation into the Federal Open Market Committee (FOMC) rate decision this afternoon and the accompanying statement. That is because this is a ‘statement only’ decision without and projections revisions or press conference. As such, it should be a more subdued affair that the March 21^st full decision announcement that included both of those. However, these more concise expressions also lead to quite a bit more tea leaf reading on any subtle changes to the formal statement. In the first instance for your ease of comparison we offer our mildly marked-up version of the March 21^st FOMC statement. Especially note that for all of the caveats that inflation “continued to run below (the Fed target of) 2 percent”, the overall assessment of the US economy was quite strong. Of course, rather than waiting until the overt higher inflation appearing, the FOMC is using that to justify hikes like the target federal funds rate bump from 1.25-1.50% to 1.50-1.75% seen at the March meeting.

As such, the anticipation is that the FOMC statement this afternoon will also remain quite positive on the US economy. That will be seen as paving the way for a further rate hike at its June 12-13 full projections revisions and press conference meeting. And the reason for that is also the shift illustrated in the opening graphic from academically oriented previous Fed Chairs Bernanke and Yellen to the more nuts-and-bolts practicality of Mr. Powell.

According to an article last November in Financial News (source of the opening graphic), JPMorgan Asset Management chief strategist David Kelly noted, “Volcker, Bernanke, Yellen, they were all intellectual leaders and would say what they thought. He has been circumspect in a way that seems quite deliberate…” That practicality likely means Powell is going to be less inclined to look for impacts from less than direct sources like any disruption in the equity markets. He is more likely to just monitor the actual conditions in the US economy, and only react once those are apparent.

While that may seem to create a situation where the Fed is classically ‘behind the curve’, it is actually very much in line with international cohorts like the ECB’s Draghi waiting for more sustained Euro-zone inflation prior to ending accommodation and BoE’s Carney’s recent awareness of lower-than-expected inflation and growth, even if…

Authorized Subscribers click ‘Read more…’ (below) to access balance of the discussion. Non-subscribers click the top menu Subscription Echelons & Fees tab to review options. As Market Observations (lower section) remain the same as in last Wednesday’s Commentary: Trump Triple Threat post, there is no Extended Trend Assessment.

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