How would you describe the social mood of the nation and world? Would anti-Establishment, anti-status quo, and anti-globalization be a good start? These are all characteristics of the long-wave social-economic cycle that is entering the disintegrative (winter) phase.
“Buying equities will put additional pressure on corporate CEOs to cut expenses and to postpone investments, fostering even greater Main Street resentment toward the financial elite. Consumer confidence won’t rise as consumption and economic growth stagnate. Having so clearly sided with owners of capital, rather than the employees of capital, global central banks are likely to become an easy target for populist ire.”
In the market, extreme optimism results in price bubbles. One of the real-life manifestations of extremely positive social mood is the construction of enormous buildings. Market tops and skyscrapers often seem to emerge simultaneously, because both phenomena are the result of the illusion of infinite prosperity. But extreme psychological conditions do not last very long...
There seems to be a lot of smug certitude that Trump is definitely destined to lose the election. We are not so sure. At the very least we would think that the race between Trump and Clinton is far tighter than it appears according to recent polls. This bring us back to a point we mentioned last week: the market is not pricing in the “risk” of an election upset.
With the recent German terrorist attacks having subsided from memory, a new Emnid poll reveals that the traditional bounce in Merkel's popularity has failed to appear and instead about 50% of Germans are now against her serving a fourth term in office after a federal election next year.
Another day, another stunning reversal in Brazil's neverending Rousseff impeachment saga. Just hours after Brazilian stocks and currency tumbled when the head of Brazil's lower house Waldir Maranhao said he would annul the soon to be former president's impeachment process, the drive to oust President Dilma Rousseff is once again back on track after Maranhao reversed a decision that had earlier threatened to throw the entire impeachment process into chaos.
Not many months ago bullish Wall Street strategists and pundits were celebrating the backdrop. It appeared to many that global central bankers had mastered the perpetual “money” machine. Markets could only go higher. Yet one would have to be delusional not to recognize the darkening clouds overtaking the world and U.S. Look no further than global terrorist attacks, geopolitical tension and the sour U.S. political discourse as confirmation that All is Not Well.
Some reversals of financial trends prove so momentous they define the generation in which they occur. The stock market crash in 1929 kicked off the Great Depression, which ushered in the welfare and then the warfare state and redefined the relationship between government and citizens. Bonds and stocks began their bull market runs in the early 1980s. Now, those markets are fonts of optimism increasingly unhinged from reality. The US has come full circle. The New Deal and World War II marked a massive shift of resources and power to the federal government. Conversely, financial reversal will fuel a virulent backlash against the government and its central bank.