2018/01/14 Weekend: Incredible? …or Not So Much?

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WEEKEND: Sunday, January 14, 2018

Incredible? …or Not So Much?

There is quite a bit of interesting trend activity in the various asset classes might seem ‘incredible’ to some observers. That could be especially so for the extended strength of the US equities along with the counterintuitive return to sustained weakness of the US Dollar Index. On the rote influence interpretation, both should be strengthened by US tax reform. Yet for reasons why that is not so for the US dollar we again recommend a read of the discussion in our November 26^th Weekend: Oddities and Anomalies post (the ‘Territorial Tax System NOT as Advertised’ section with the link to the Center on Budget and Policy Priorities’ analysis.) And there is also the resilience of the govvies in the face of rising (if still low) inflation and improved economic data. Their ability to hold serial tests of major trend support (i.e. resistance to higher yields) may also seem a bit incredible in that context. Yet in each case there are reasons each of them is conforming to ‘business as usual’. That is in spite of the seeming major outperformance of equities, unseemly weakness of the US dollar and stubborn resilience of the govvies. None of it is in any way ‘incredible when taken in the broader historic context and realistic current assumptions.  

After the first week of the year we were already noting the euphoric sense that had seeped into the US equities. And after last week it is that much more apparent, and seems equally unlikely to signal the end of the rally… the proverbial ‘blowoff’ that can end any extended accelerated rally in a blaze of glory. Is it like the very rare volcano erution that is so violent it creates lightning? So incredible it seems like something that just shouldn’t happen? Actually, not so much. The accelerated nature of the trend engenders just the sort of exaggerated movement that the US equities (or any other market) can display out of an already strong trend that is entering an accelerated phase.

Think about it. The March S&P 500 future had rallied 66 points in the first week of the year, and came right back with a further 47 point gain without trading more than a handful of points lower last week. That’s a cumulative gain of 113 points in two weeks. And this would not seem quite so incredible if it had been recovery from a previous major selloff. Yet it was in fact an extension from the top of an overall rally of just over 2,000 points since the March 2009 low, and…

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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2018/01/08 Commentary: Quite a Week

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Commentary: Monday, January 8, 2018

Quite a Week

We began last week by wishing everyone the obligatory Happy New Year. And as it turned out, it has already been very happy for the US equities bulls. This is also true for their international counterparts, even if politically challenged Germany is lagging a bit. Yet the degree pf leadership emanating from the US remains very impressive, almost to the point of straining credulity if it were not an actual market where independent operators come together to ‘discover’ the current values. As actor Hugh Laurie as the foolish prince regent in the old Black Adder comedy series might say, “Well, lucky lucky us.” And possibly for the first time in the lengthy rally from the 2009 lows there is a sense of euphoria. While we will discuss the issues that might bring below, for now it seems most folks are content to just marvel at the overall market progress since Trump’s election.

That is even true of many of his acolytes, and especially his detractors. The latter camp includes those who were convinced a Trump victory would result in the destruction of the US equities rally. While some are still saying it is only a matter of time prior to the market waking up to some sort of ‘Trump trouble’ that will collapse the US equities, that is not likely. Consider all of his peccadillos to date. None of even his more mindless and offensive proclamations or actions (like Charlottesville and firing FBI Director Comey) have created anything more than limited corrections in the inexorable equities rise.

How much of this is fully Trump’s doing, versus other factors which are predisposing the US (and global) equities and economies greater strength, is highly problematic. Yet for the first time in over a decade there is a coordinated global economic expansion underway. And regardless of his extensive encouragement since the promises made during his 2016 election campaign, the passage of US tax reform remains more of a Congressional   success than an isolated Trump action.

That said, Trump’s rollback of Obama executive order regulatory expansions has been an explicit and implicit benefit. In addition to specific lower costs associated with less regulation, there is a sense the ‘friend to business’ Trump administration has replaced a hostile Obama administration. That includes guidelines to agencies along with specific regulatory rollback. This was already building confidence prior to market euphoria.

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 this is a ‘macro’ assessment, the Market Observations (lower section) remain the same as Thursday’s update in last Monday’s Commentary: What Just Happened… or Didn’t? post, with no Extended Trend Assessment in this post.

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2018/01/01 Commentary: What Just Happened… or Didn’t?

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COMMENTARY: Monday, January 1, 2018

What Just Happened… or Didn’t?

Happy New Year. And we assume the last thing anyone needs at this point is another 2017 markets retrospective. After all the mainstream and financial press astonishment at the sharp rise of US equities and more problematic observations on other markets, it seems redundant. Yet there were select developments into and after the Christmas holiday that warrant further review. This is not just in their own right, but also what they might be telling us about the implications for US tax reform’s impact on the economy and markets into 2018. All of them also reinforce the classical cliché, “The market is a creature of expectations.” And as alluded to at times, that means great portfolio managers and analysts must be ‘creatures of anticipation’. That includes the ability to surmise whether any inconsistencies in current market activity might have broader implications than just the lack of predicted response in any particular asset.

In the recent market activity there were four ostensible anomalies. Two were things that occurred, and two were conspicuous by their absence. To begin with the US equities, there was a distinct lack of further strength after the passage and signing of the US tax reform bill despite its massive corporate tax cut. Yet this conforms to the ‘creature of expectations’ assessment, as the US equities had also already rallied massively in spite of temporary setbacks since right after the 2016 US election of President Trump. After reflecting those major positive expectations for many months, equities also had to shift their expectations to more hurdles in January, from the next government budget and funding effort to the thornier immigration issues facing Congress.

So maybe not so surprising they took a breather on the event after so much bullish anticipation over a full year. As such, one ‘non-occurrence’ seems to have a ready explanation. The other ‘non-occurrence’ can conversely also be considered something that happened, depending on the point of view. And that was the lack of strength in the US dollar which should have accompanied any sign that US tax reform is indeed going to foster much stronger US economic growth and major offshore profit repatriation.

Stated conversely, the US Dollar Index exhibited significant untoward weakness into and after US tax reform passage. Tax reform passage also brought another occurrence: the weakening of the govvies. Yet even there the response was not quite as expected.  

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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2017/12/12 Commentary: The Continuing Perturbation

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COMMENTARY: Tuesday, December 12, 2017

The Continuing Perturbation

As noted in last week’s Commentary: ‘Santa’ already in town (redux) post, this year is a bit different in the context of just how upbeat the equities outlook has become. This was somewhat the same last year on the pending regime change in Washington DC. And it has now been injected with steroids on the new team actually looking like it can accomplish tax reform that was in doubt after the health insurance reform failure. Yet Washington DC cannot help itself in still attempting to get in the way of what are very upbeat expectations based on that anticipation of higher retained corporate earnings due to lower taxes.

Late last week the Republicans and Democrats once again demonstrated the power of their extreme wings. Another ‘continuing resolution’ for the US budget that will keep spending going (and prevent a government shutdown) could only be approved for two weeks. That was rather than extending it somewhat into 2018 to allow for more meaningful negotiation on rightfully challenging issues.

That’s right, the deadline falls on December 22^nd… right into Christmas weekend!!

That is why we have designated it the ‘continuing perturbation’. It is nothing less than perturbing that the US Congress cannot come to grips with the critical social and military spending issues to create a real budget (versus simple agreement to keep spending.) However, this most recent round that has both sides digging in their heels over the DACA issue (under age undocumented immigrants policy) on the Left and need to address government spending on the Right allows for only two weeks to resolve those issues, moving definitively from the ridiculous to the sublime.

In the first instance, the Republicans are rightfully preoccupied with their tax reform effort. And the Democrats are still unwilling to consider greater border security funding as a bargaining chip to create an amenable solution for the DACA folks. So what’s going to change by December 22^nd? Stop the presses!! This is a real shocker!!

NOTHING!! …except a further kick of the can down the road into early 2018. So why aren’t the folks in Congress capable of preventing additional concerns right into the holiday? And do markets really care? Well, it appears the markets have figured it out, at least insofar as US equities have turned into an upside runaway in spite of this!      

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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