"The Fed has a history of tricking it self into believing the economy is stronger than it really is - something that has happened a lot during this recovery. And there is reason to believe it is doing so again. If that’s the case, the Fed could be living in denial about its ability to raise interest rates... ‘The road we’re on is coming to an end,'”
Stock markets are said to “discount the future.” Maybe they see something we don’t. Or maybe they are simply preparing for a more spectacular day of reckoning by drawing more mom-and-pop investors into deeper water; as always, we wait to find out.
"We are sellers into strength as Feb despair on 4C's (China, Commodities, Credit, Consumer) flips to March/April euphoria; today's new all-time highs for defensive DJTNCG (personal & household goods) index + violent EM bear market rally in EM = uber-barbell of best of breed assets & junk assets best method for H1 outperformance; higher bank stocks & bond yields required to sustain broader risk rally."
"We're in a bear market — we can't get away from it," warned CNBC's Jim Cramer on February 5th, exclaiming that "the stock market is not working." A month later - following a 13%, almost irrepressible ramp in stocks - Cramer has changed his tune, explaining last night that "signs of a massive rally could be coming." We wonder, with contrarianism like this (combined with his confidence that "Deutsche Bank is not systemic"), is Cramer the new Gartman?
On the heels of Trannies and The Dow, The S&P 500 just crossed into green for the first time in 2016. This technical melt-up occurs as the "average" stock reaches a key intersection of recent trendlines...
Gordon Brown, back when he was the UK Chancellor of the Exchequer, distinguished himself by selling off approximately one-half of Great Britain’s gold reserves at what turned out to be a near-bottom at the end of the secular bear market in gold which lasted from 1980 to 2000-ish. However, the news that the new Canadian Finance Minister Bill Morneau has completed selling all remaining Government of Canada gold reserves may remove Brown's laughing-stock status.
The biggest danger to the S&P500 over the short-term has little to do with what Janet Yellen may say tomorrow, and everything to do with the marginal buyer of stocks being put into a state of forced hibernation
"The issue is not whether margin debt will matter, it is just 'when'. Unfortunately, for many unwitting investors, when that time comes margin debt will matter 'a lot.'" And we suspect The Fed knows it...
While cnd concerns of a US recession have receded dramatically in the past month, no doubt in response to the price action in the markets, which have seen a 200 point surge in the S&P and a 50% rebound in oil, and instead all eyes are on the Fed, where "quantitative failure" is now the top concern among 18% of those polled.
"Last week, during which the S&P 500 climbed 1.1%, BofAML clients were net sellers of US stocks for the seventh consecutive week. Net sales of $3.7bn were the largest since September and led by institutional clients where net sales by this group were the second-largest in our data history."
Over the past month, as expected, the CLO rout has gone from bad to worse, and according to the latest Morgan Stanley CLO tracker, as of the end of February, the median US CLO 2.0 equity NAV stood at -1.99 with the number of CLO 2.0 deals’ equity tranches currently having NAV below zero soaring by 30% from 348 to 453.
"While investors focus on oil and the ECB, they overlook the largest current macro market risk – and opportunity – which centers on the Fed. Although our economists expect rates will remain unchanged, a credible argument can be made for the FOMC to proceed with the “flight path” it had previously outlined.... The market’s eventual acceptance of the Fed tightening path will spur some parts of the momentum trade to resume and others to unwind."
Despite ongoing Central Bank interventions which boost asset prices and acts as a huge wealth transfer tax from the middle class to the rich, corporate earnings are a direct reflection of what is happening in the actual economy. Wall Street has always extrapolated earnings growth indefinitely into the future without taking into account the effects of the normal economic and business cycles. This was the same in 2000 and 2007. Unfortunately, the economy neither forgets nor forgives.