Month: January 2019

Today was a relatively quiet day in terms of daily news in the market. With that in mind, I would like to revisit an analog that Ray Dalio has been vocal about. Below, you will find an image I screenshotted some time ago that shows history rhyming within the markets in tandem with an excerpt from Dalio’s Principles for Navigating Big Debt Crises. I am not going to get into the spark notes, but once you familiarize yourself with the analog, the piece that is missing is war…

I am often skeptical of mainstream news. An understanding that I am beginning to reach is that it is of the utmost importance to be aware of news before it reaches the mainstream outlets. This is one of the reasons I love twitter. Anyways, geopolitical tensions in the South China Sea are getting mainstream attention now, which leads me to a crossroads of how to read into it. One possibility is that the conflict has reached a point of inability to ignore, and the other is that it is in the best interest for markets to create fake fears and then reverse them in order to give markets artificial good news. Time will tell which is the case of course.

The second thing I noticed today that was a bit comical was that it only took 4 days to reverse the rhetoric that the IRS would not issue refunds during a government shutdown to refunds will be paid. My 2 cents is that with the bulls and bears battling that the government realized the importance of this money in the hands of consumers both literally and mentally (kind of like a mini wealth effect or at least the avoidance of a reverse wealth effect) for future earnings.

Why does the government care so much about the stock market? Thanks for asking. The first answer is most obvious and that Trump has taken credit for rising equities, which makes it politically necessary for the stock market to keep rising for this administration. The sometimes missed answer is that when equity markets are at extremes relative to GDP, then tax receipts are heavily dependent on capital gains. This correlation is quite visible from the image of the Wilshire 5000 overlaid on federal government tax receipts.

Hopefully tomorrow we will have more pressing news.

Markets have a funny way of hurting as many people as possible. I will get a page up shortly on why recession is imminent and why this bear market is short in the tooth, but assuming that recession is upon us, the jobs “blowout” is exactly the type of data that will ignite some short term market strength. If past is prologue, then today’s job report may be the perfect catalyst for a sucker’s rally.

Total non-farm payroll employment increased by 312,000 in December. Consensus expectation was for a rise of about 176,000 jobs.

https://www.bls.gov/news.release/empsit.nr0.htm

Largest month over month winner in job growth goes to the below average wage paying jobs within “Leisure and Hospitality.”

More citizens needing multiple jobs is not a sign of economic strength. It is a potential sign that the consumer is so strapped with rising costs of living, rising costs of debt, and the reverse wealth effect of falling stocks causing citizens to desperately seek more income.

As one can see from studying the above chart, monthly changes in non-farm payroll jobs are quite volatile. Simplistically, the thing that is standing out to me is that the last time we had a spike above this December one was right after the February crash. As we all know, we also just had a December crash. Again, if past is prologue, then a rally may be upon us.

To further support current market sentiment and this sucker’s rally, Kudlow said today that there is “No recession in sight,” so obviously we’re safe, but more importantly we had some dovish speech from Powell.

Time will tell what the market deciphers of this news. Resistance levels to watch on the S&P 500 include: 2550 (whole number), 2588 (3/19/18 bottom), 2600 (whole number), 2619 (2/5/18 bottom, 11/19 bottom, and 61.8% Fibonacci retracement of the current move since 12/3/18).

The ISM Manufacturing PMI in the US fell to 54.1 in December, the weakest since November 2016, from 59.3 in November and missing market expectations of 57.9. It was the largest monthly drop since October 2008 as growth in new orders, production and employment slowed sharply. Business Confidence in the United States is reported by Institute for Supply Management.

https://tradingeconomics.com/united-states/business-confidence

Regional Fed Surveys were already beginning to show collapse.

Also, please see great point from Julian Brigden below.