The Maui Disaster Made Worse By Disinformation Eerily Echoes The Bull’s Sophistry About The Consumer: The Action For Tuesday, September 12, 2023

While the Times bemoans the characteristic malevolence of the Chinese Communist Party in exploiting the disaster in Maui the bears can feel analogous victimization in the disinformation coming from the bulls, As more data surfaces showing the parlous state of the consumer so too the bulls trumpet continued spending as proof it’s early days in the economic cycle. For the bears the only choice is to grin and bear it and wait for opportunities to enter new short positions when bullish exuberance goes too far. That day will come soon as the S&P 500 likely rises over the near term only to reverse course by later this week and head back to 4400 as September superstitions and low trading volume gives the bears an edge.

The bulls have control for the moment as several indicators reveal confidence in corporate earnings and the macro environment. These include:

  • Zinc Prices: Few commodities are as broadly important as zinc, and rising prices for zinc signal better than expected global demand, which is usually good for equities.

  • S&P 500 Technicals: The top 40 in the S&P 500 look set to move the market higher.

  • Volatility Risk Premium: The VRP signals significant upside in the near term as the VIX has declined relative to actual volatility.

  • MOVE Index Of Bond Volatility: Fixed income volatility is steady and implies modest inflation expectations and stable interest rates to come, potentially bullish for equities and the global economy.

  • High Yield Credit Spreads: The cost of borrowing is falling for lower-rated firms compared to their AAA siblings, a confident signal of an improving economy.

  • BTP-Bund Spread Of Italian & German Bonds: Italian default risk and a corresponding crisis for the Euro are muted, which is critical for European stability and is good for global growth.

The bears can count on contradictory signals from the action overnight that eventually pushes the market back down, including:

  • Shanghai Composite Technicals: Chinese equities are trading poorly and that bodes ill for the global economy.

  • Inflation Expectations: Investors expect rising inflation over the coming years, implying higher interest rates to come, potentially bearish for equities.

  • Long-Term Treasury Rates: Long rates are rising and that will reduce the attraction of equities while cooling the housing and auto industries to the detriment of economic growth.

  • WTI Crude Prices: Oil and by extension gasoline is getting more expensive and that in itself hurts consumers and the global economy.

My current positions reflect my intermediate-term bullish forecast, and include 3M (MMM), Pfizer (PFE), and a large position in UPRO that is largely hedged by an offsetting position in SPXU, which nets out to a long position in equities.

Warmth Is Wealth