Things Aren’t Playing Well In Portland But In The Financial Economy It’s All About Peace And Prosperity: The Action For December 12, 2023
Guns, drugs and money mark the Time’s depiction of economic and cultural divides that are breaking down Portland, Oregon and fomenting racism against select whites across college campuses. But neither the nation’s violent disquiet nor even this morning’s unappealing inflation report are enough to dent the bulls’ escapism from the world’s troubles into a mindless rally driven by Santa Claus sentiments. The S&P 500 likely falls over the near term, but the consolidation will be limited as the market is set to make new 52-week highs as the bulls gear up to make a run at the all-time highs in 2024.
The bears have control for the moment as a few indicators reveal pessimism on the macro environment. These include:
Volatility of Volatility & Put/Call SKEW Metrics: Derivatives trading in volatility is heightened and signals that active investors are concerned equities are going lower.
Aluminum Prices: Aluminium is a critical input for consumer and industrial goods and falling prices signal weak global demand, which is usually bad for equities.
Tin Prices: Tin is broadly used across goods and industry and falling prices typically signal worsening growth prospects.
Geopolitical Issues: Developments around the Middle East and Ukraine are a clear negative for equities.
But based on the action yesterday and overnight there are nearly as many bullish factors that will flip the markets around, including:
Inflation Expectations: Investors expect lower inflation over the coming years, implying lower interest rates to come, potentially bullish for equities.
WTI Crude Prices: Oil and by extension gasoline is getting cheaper and that in itself helps consumers and the global economy.
Liquidity Metrics: Measures of money flow across the globe are trending upwards lately, which helps equities.
My current positions reflect my intermediate-term bullish forecast, and include 3M (MMM), Pfizer (PFE), and a large position in UPRO that is partially hedged by an offsetting position in SPXU, which nets out to a long position in equities.