Every day I go through roughly 200 stocks/indices/indicators, several times per day, looking for signals, attempting to connect dots and ultimately, hoping to find risk/reward situations that create outperformance.
The title Lies, Damn Lies seems appropriate as when the markets want to reveal any kind of truth, they first do so through blatant lies. Conversely, whenever truth appears apparent, there is likely to be deception involved. In other words, markets are a thief and must be treated like one whenever attempting to interpret their message.
These are simply thoughts (some completely random) as I attempt to connect the dots:
- The inherent conflict that has existed between the Fed and White House is nothing new. In fact, there have been numerous times throughout history when the Fed is pursuing tightening in monetary policy while the White House is spearheading an aggressive fiscal campaign. The Fed will remain true to its mandate, spoken or not, irrespective of interference from the White House. Whether Trump can actually have Powell removed is another subject. Should the markets continue to slide in 2019 I can't see him not making a valiant attempt.
- Bid to cover ratio on recent 2 year and 5 year treasury issuance is extremely thin. In other words, there is little demand for U.S. debt. Foreign central banks and institutions are stepping back due to negative dollar hedged returns, leaving only U.S. institutions, such as banks, pensions etc. to do the bidding. This dilemma will only be amplified in the new year as funding costs for the U.S. are set to increase.
- The next version of QE, if it comes, will look nothing like the last. Expect yields to jump and the dollar to dive. The theme in 2019 may just be "how the Fed lost control of the financial markets."
- What happens when 401k statements and hedge fund capital balances are seen by investors in January? There will be redemptions galore.
- If your financial advisor is down in line with the market this year then they are a premium priced ETF with a voicebox that regurgitates news on a daily, weekly or monthly basis. 2018 flipped the market into an environment where skilled investors can generate alpha. I expect it to remain that way for years to come.
- Chinese conglomerates have been on a global buying binge driving up everything from real estate, to equities, to nightly high end hotel charges. Their appetite for accumulation seems to be shifting to a more nationalistic tone, however. This could turn into a very real theme in the years ahead. An article on it here http://www.globaltimes.cn/content/1133609.shtml
- As much as the markets have turned on President Trump, what are the chances they allow him to bottom tick the market with his buy recommendation given in a Christmas day interview yesterday? Somewhere between slim to none and slim just left out the back door.
- Tech growth names will be hitting a wall in 2019. Combine that with dicey economic conditions, expensive funding and declining confidence. It's a toxic mixture. As I've been saying all year, everything has changed in 2018.
- Bitcoin and precious metals have been moving up together in recent weeks. This will be an important correlation to watch in the intermediate to long-term. While I have little confidence in any of the cryptos, if investors turn to both metals and crypto as an alternative currency class, it signals a growing lack of confidence in the system or systemic risk, if you prefer.
- While everyone is fretting about the U.S. markets, emerging markets are putting together a nice bit of relative strength for themselves as expressed by the ratio of emerging market to the S&P 500. This may signal a growing lack of confidence in sovereign debt levels. Emerging market, commodity driven names are the primary beneficiaries of a global move away from monetary stimulus into fiscally driven initiatives. Real goods will matter again.
- These are the estimates of various Wall St analysts for the S&P 500 next year. Every single one has the market going considerably higher. This is a big problem.
- To contextualize today's rally: It gets us back to Friday's levels. That was two trading days ago.
- The ideal bullish scenario from here is a complete retracement of today's rally, followed by a fairly violent move to new lows in order to solidify a base. There are significant support areas for the Dow, Nasdaq and S&P directly below the recent lows. I'll be looking for this scenario to take place over the next couple weeks. In the meantime, there really isn't anything to do on the long or short side.
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