What The Entire Financial Markets Complex Is Telling Us: America Remains Stable But The ROW Has The Fed And Malevolent Politicians Rocking The Boat
The hydra-headed beast of inflation, inhumane Eurasian politicians and a self-centered Federal Reserve is cracking the world’s economies and leading equities lower, while the Democrats try keeping themselves and America together. Last night’s Democratic victory in Alaska could be a harbinger of a American centrism holding power through 2023, but elsewhere politicians stoke war, riots, genocide and the growing scourge of leftist economic self-sabotage. Right now global investors are betting America keeps it together and showing their confidence by pushing the $US to new highs, while equities remain stubbornly well above their bear market lows. But unless tomorrow’s jobs report shows a cooling economy I expect investors will dump American equities and stop trying to fight the Fed as we head into the Labor Day weekend. The volatility risk premium points to a market fall over the next few days while my technical reading of key stocks in the S&P 500 is bearish. Yesterday's cross-asset action brought one positive factor for US stocks. Inflation expectations are stabilizing based on measures of Treasuries and TIPS. But there were also several negative factors across global asset classes. Copper is pointing to declining global GDP expectations. The US yield curve is rising and in the current context that is bearish. Expect the S&P 500 to be fall significantly between now and 4pm Friday.
Key to equities is the US yield curve, as bonds across the maturity spectrum relentlessly head lower and volatility looks set to rise from already high levels. The call on a bond market bottom likely comes when recession becomes guaranteed, and that requires a second jobs report in October rather than tomorrow’s report.
The $US rally continues even as commodities are moderating and US inflation expectations have settled in the benevolent area of 2.5% over the medium and long term. Fossil fuels are diverging, as crude is range-bound while refined and distillate products are declining and natural gas raging, while metals are breaking down and ags and softs are for the most part moderating. This complex environment is likely unsustainable, and the odds are the $US keeps rallying but the broad commodity complex rolls over as inflation fears become overwhelmed by global recession fears. That will occasion a drop in confidence that leads the S&P to new bear market lows, and likely a bottom as Autumn gets underway.
My current positions are a very large cash position, Goldman Sachs (GS), 3M (MMM), Pfizer (PFE), Starbucks (SBUX), and the levered ETF SPXU.