A Resilient Global Economy Fuels Irrational Exuberance — The Latest On The Global Economy

The bulls remain in control despite little economic evidence to support interest rate trends, equity valuations and earnings estimates. We’re in a potential blow-off period depending on how the market reacts to the Fed’s discussion this afternoon. The volatility risk premium is pointing to a range-bound market over the next few days, while my technical reading of key stocks in the S&P 500 is neutral. Yesterday's cross-asset action brought one positive factor for US stocks. Inflation expectations are stabilizing based on measures of Treasuries and TIPS. Expect the S&P 500 to be range-bound over the next few days.

The global economy continues to moderate despite central bank tightening and declining consumer confidence in the US. Across Asia the mood is exuberant as China reopens, as the January PMI readings showed optimism across both manufacturing and non-manufacturing. Yet this is likely short-term as evidence from Japanese exports shows softening while simultaneously domestic demand is weak. Across Europe sentiment has improved largely because the worst-case scenario has been avoided to date. Growth is France is just above positive and the same for Spain, while Italy and Germany are just modestly below zero. And in the US the jobs market is so strong that recession may well be avoided despite profound Fed tightening. Eventually the financial markets will reflect economic reality but for now the bulls are in control.

Yesterday I entered a very large short-term swing trade in the inverse levered ETF SPXU, consequently my current positions include a modest cash position, Goldman Sachs (GS), 3M (MMM) and Pfizer (PFE) and inverse levered ETF SPXU, which nets out to a large short position.