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4 Aug 2019

MURDERS AND MARKETS

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Post by MoneyRadio Staff

—–Here is your next week. The left and the national media blame Trump for the murders. The right blames it on mental health. Lots of whining and complaining from both sides before the bodies are even removed from the crime scene. On about day 8, this will be all but forgotten until the next tragedy. But until then, it will be back to elections and re-election. You expect anything more from 535 people who through the years have put the tax payer on the hook for $22.5 trillion and counting? You expect anything from the administration? We don’t! We would love to be wrong but we bet on horses by their past performance. All our thoughts and prayers to those affected.—–
—–It used to be that markets were great at telegraphing the future. Markets would go on their merry way to the upside and would then top a few months ahead of recessions. As markets wound their way through the downturn, the fed would start to lower rates. After a few rate cuts, markets would start looking at the light at the end of the tunnel and start to bottom. Bottoming would be a process but eventually turn back up again. During the late innings of the bear phase, a keen eye and hard work can see which names held up best during the last leg down. Those names would start building the stair steps upwards before the market bottomed. Thus, we can find the relative strength. We know by precedent that many of these names will lead when the next bull market resumes. Thus the motto: “it is easiest to isolate strength when the market is weak!” These names would quietly and without fanfare rally towards new yearly highs but are held back by the market. This is called the base building. They want to go higher but the overall market weakness does not allow it just yet. They become what we call “coiled springs!” They build up energy and pressure, just waiting to shoot out of a cannon once the market allows it. Some call this trying to keep basketballs under the water. And then markets bottom. How do we know markets are bottoming? The first thing to happen is these new leaders indeed shoot out of a cannon. The basketballs indeed jump out of the water. This is the first clue. But we then start to get a series of up days on heavy volume and pullbacks on light volume. We start to see the stair steps heading up as the market finally makes a series of higher lows and higher highs. But most importantly, more and more names break out to new highs as points continue to be put up on the scoreboard.—–
—–We just gave you the road map to how things worked for a very long time. Unfortunately, it just ain’t that easy any more. Central banks have interfered beyond any comprehension, both here and around the globe. They have made it the norm to step in front of any market downdraft with easier money. They do not even pretend any more what their goal is. As we have explained, just look at the past two lows. They coincided with two pivots from our central bank. Both times, the excuse was worry over the economy. But economic numbers and employment numbers kept coming in with decently good numbers. What is the common denominator? Both times we were in the midst of bearish action.—–
—–But we now have to add another fly in the ointment, that being President Trump. Leave no doubt he is tweeting and setting policy by market moves. We have watched this for months. We have watched how he says the fed is independent and then rips them to shreds. We have seen proposed tariffs cause market corrections only to see those proposed tariffs magically disappear because of the market correction. Mexico tariffs out of the blue….markets drop…Mexico tariffs disappear. European auto tariffs? Gone 4 days before they were supposed to start without any negotiation. China tariffs? How many times have there been threats only to see the threats go away? The latest being the G-20 meeting. This brings us to our point.—–
——Again, out of nowhere, with absolutely no warning, the president announces 10% tariffs on everything coming from China. Markets swoon. But that’s not the problem. The problem is that our expectation is that any further market drop will get the president changing his mind again. Again, policy dependent on markets. Frankly, we wouldn’t be surprised if these new tariffs are taken off in just days. This is how much we trust right now. We never, ever, ever had to deal with something like this. The fact we believe there is very little chance this latest tariff proposal will not happen tells you everything you need to know.—–
——No longer are markets on their own. They are being run by central banks and now being run by a president’s whims. It is not a reach to say all the losses the market just incurred could be recaptured overnight on just another tweet. We used to be able to say “when all is said and done, markets will do what they want to do!” We can no longer say this any more. We just hope that this constant interference does not lead to dislocations. Unfortunately, we think it a gimmee that eventually, markets are going to shoot back a certain finger at all this nonsense but don’t know when.—–
—– Fast forward to now. Under normal circumstances:—–
—–A bunch of stuff  looks toppy, topping or topped. A bunch of leading names have broke the all-important 50 day average on volume. Big names like AMZN, NFLX smacked on earnings and even AAPL off the latest Trump move has buckled. Foreign markets act terrible. Small and mid caps have lagged for months. The transports have been lagging for months also. The good news is the big 4 that have led, the DOW, S&P, NASDAQ AND NASDAQ 100 all held the 50 day average on Friday as markets rallied decently off the lows. To be blunt, if the leading indices break those levels, get the fork. At the very least, things are now a tougher proposition as we head into what are normally a couple of weaker months. But again, these are not normal times as we know Powell is watching and the president is watching. We really do believe another 500-1,000 points down get the tariffs going bye-bye or Powell throwing a little more “insurance” at the markets with a cut before the next meeting.Welcome to our world.—–
—–And lastly, the longer term worries.—–
—–This latest fed cut was number 729 global central bank cuts since Lehman…yet many areas around the globe have either flat-lined or worse.—–
——The German 30 year yield is now negative. Not sure we need to repeat that. The 10 year yield is -0.5%. Just wondering what this means. Germany is supposedly the engine of Europe.—–
—–Our 10 year is down to 1.855% and the 30 year at 2.391.—–
—–The bad guys and girls just raised federal spending again…simply sticking another gigantic middle finger back at the tax payer. Notice how many are retiring? We would get the hell out of Dodge also if we were in their shoes.—–
—–And now, central banks are going easier again, enabling all this, what should be criminal activity to continue.—–
—–Our motto stands. We have never been more optimistic on the people of this country. We have never been more pessimistic on the people that were elected to run this country.—–