All the Smart People

Shifting gears from my last blog post on the Macro Cycle outlook.

I have taken a couple of days to settle in and not blog as the markets stall. The explainers are now out in force. Just watch two daily CNBC shows, “Fast Money Halftime”, and “Fast Money”, all the trader/panelists, who now know for sure why the market is in this euphoric state and why it will get much more euphoric. I will call them the “Hammerhead Crowd”. Even though they are flying vertically, they cannot believe that everyone would not believe all their rationalizations and get in the plane with them. Here are some of their views:

  1. The volatility measure that everyone follows, the VIX, shows their is little fear (is that good? I would ask)
  2. There is going to be much more stimulus and studies show 70 % will be invested in long stocks.
  3. Corporate buybacks over the past 30 years have reduced the number of stocks by 30 %.
  4. And they say, high valuations never cause crashes.
  5. The pent up demand after the pandemic ends will ignite a retail virus.
  6. The Biden administration Fiscal thrust is towards massive liquidity.
  7. The FED will never stop the funny money train.

What can I say?

Any analyst using simple supply / demand tools is dumbfounded with the layers of manipulation and hope that make up the basics of this market.

First I will show two tools that I have and continue to use.

  1. One is a trade timing tool that uses inputs from the bond, stock, commodity, gold, and currency market prices, but is weighted towards stock price.

Here is the table of trades for this timing model since January 2018. As is apparent, the current trade result to date, short trade is still building, is much different compared to prior trades. In total however, I don’t see abandoning the program.

2. The second chart is a Big Picture momentum analyzer that equally weighs the inputs. Its value is in signaling the economic extremes.

As can be seen from the chart we are seeing a moment where the R10 sell line which is based on total of all economy components and are at a high, ie. interest rates, stocks, commodities, gold, and the inverse of the dollar reaching an extreme. This is a risk adjusted big picture look, highs in early 2018 and currently early 2021, and low in July 2020.

For me I have to go back to the following point that was part of one of my recent blogs.

“What if stocks are just a coping mechanism to the pandemic, a manifestation of crowd behavior, with little or no attachment to value or any measure of economics.  If true, as we approach the end of the pandemic, and the end of coping, watch out.

My take on things based on just personal observations of people I know and some who live near me:

  1. Things are political to the core. Trumper’s rarely mask and I have to say that most that I know over 65 have not died, only 3 so far. We stay away from them.
  2. Some big themes are destined to become fodder for future books, how far away from the famous Dutch Tulip scandal, is Bitcoin, while it has transactional component, core value is a greater fool saga.
  3. The widely expected surge in consumer spending after the pandemic is grossly overstated in my opinion. People in the high spending 35 to 65 group have not let the pandemic slow their spending on homes and new cars, why would they spend more after the pandemic? I know many personally. And for the 11 percent of the people who don’t have jobs or money, nothing is being done to redeploy them into productive endeavors that would allow them to start buying stuff.
  4. And the profound changes that I see coming around on people’s behaviors is totally being ignored.
  5. And…while I have been a supporter of Biden just to get rid of Trump, I don’t see that he has put a really strong team together that can meld growth with clean energy. Too many tree huggers and old guys. What is John Kerry doing in the administration. He should be helping his wife watch Heinz ketchup being packaged.
  6. For the past forty years Republicans have put together a formula that works to push stocks and GDP higher, lower taxes and increase government debt. The problem is inequality has grown massively. Democrats have the opportunity, although much more difficult and complex than the Republican formula, to mix clean energy, jobs, infrastructure, rising GDP, and equality, along with increasing revenue through taxation and improving the debt paradigm. They could start with making the parts of the economy that is grabbing dollars and tax it much heavier, da, like internet transactions.

That is enough for today.

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