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.