Lifeless cat bounce or does the fairness market have what it takes to reverse that destructive bear market stigma? As we highlighted over the previous few weekly notes, we suspected the fairness markets would bounce. Nevertheless now, we really feel that the euphoria has hit some technical ranges that ought to put to check the veracity of this rally. We wish to take a longer-term strategy in occasions like this as everybody is all goosed up concerning the rebound, as a result of basically nothing has actually modified. In reality, one can argue the place fundamentals are involved, the backdrop continues to weaken, international instability continues to realize, and the US authorities furlough appears to be foolishly missed.
The French yellow vest motion continues unabated and western media continues to shun protection. Brexit as soon as once more continues with uncertainty and we will’t work out for the lifetime of us what that even entails within the bigger scheme of issues, aside from it units a precedent for others to comply with. Talking of Europe, we will’t assist however discover Draghi and his alleged stability sheet discount because the ECB continues to tackle belongings. As Zhedge posted at present, the stability sheets of the ECB and BOJ proceed to develop. We suppose the latter couldn’t assist themselves contemplating the Nikkei weak spot to take down just some extra shares! Anyway, right here is their chart, which maybe, factors to a single rationale for fairness outperformance early on in 2019:
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Q3 hedge fund letters, convention, scoops and so forth
Regardless of, you all know our mantra “QE4EVR” and it’s apparent right here even the smallest fairness pullback sends chilly water shivers down the spines of those weak central bankers. DeutBank this week minimize the EU progress forecast 30% right down to 1%. So, the check is on for these central bankers, are they prepared to let asset costs fall and stability sheets shrink, or will it’s enterprise as normal?
Regardless of which they select two outcomes are sure, debt piles will proceed to develop exponentially, and market alerts will proceed to be closely distorted by this infinite synthetic central financial institution help. They aren’t fooling us, we all know the reality, fiat and debt, they’re the identical issues and to worth an asset based mostly on them is a perform of continued QE. With out QE asset costs fall, defaults happen, economies contract and central banks assert additional management. Whether or not or not the individuals prefer it, doesn’t matter, until the whole system modifications this is all we now have.
So, with all that stated, we’re nonetheless going to say Powell stays the course and hikes in March to get the Fed Funds towards the upward sure of two.75%. His historical past, his opinions, the truth that he is not an economist, provides us hope that he’ll proceed what he began. It’s not as a result of we would like a protracted contraction or a recession to be induced. Moderately, it is as a result of we all know that the pure course of issues is inevitable, not preventable. The longer we permit this charade to proceed the more durable the punishment might be in the long term and it’s not monetary damage we’re involved with as a lot the drubbing civil society will take when eventuality does attain its due course.
Technically, let’s take a look at how the week transpired. This chart of the SP500 future provides an excellent technical glimpse on the resistance from each the fib. 61.eight% in addition to the 50 interval Vwap. The 2625 degree is the bull’s hurdle and the bears degree to defend:
The Nasdaq future is located on the prime of our Four-month lengthy development channel as 6675/90 space appears to be logical resistance:
The tech heavy Nasdaq when seen vs the SP500 has hit close to the prior highs from late November. We all know FAANGs proceed to be the favourite, however we’re considering the boat is full and if the tide does flip once more, life jackets can be far and few between:
Once we take a look at March Crude Oil, we will see that it too peaked final October and since placing in a pleasant low at $42, we’re again forming a base between $49 and $55 with clear resistance from the Vwap persevering with to strain the bull’s case right here:
Our remaining chart is Feb Gold, which continues to shine, and we really feel a break of $1295 factors properly as much as $1312 and finally up towards $1350:
We now have a comply with as much as our ongoing PG&E saga, which we first talked about in our November 14th weekly letter. Nicely with chapter virtually sure and regardless of the score businesses ineptitude to downgrade them sooner, it seems to be as if they may turn out to be the third largest IG default in historical past with $17.5bln of index eligible debt. (Zhedge) Right here is a chart we posted again in November:
What else have we discovered this week? The WSJ put out a pleasant piece on the hackers of the SEC EDGAR submitting system and outlined to perfection their scheme to revenue from the knowledge. We will’t assist however assume that this can proceed to be a problem within the digital international market place. A problem that may proceed to plague our digital lives, particularly contemplating IBM is going to place their new quantum pc within the cloud. For those who don’t know what this implies for previous encryption and safety, properly you higher learn up, issues are about to get really fascinating. Kind of makes me want we might return to the great previous paper path pit buying and selling days the place every part was completed with a bodily order.
We additionally learn a quant piece on Rep. Ocasio’s plan for a 70% tax price, the numbers are in and that might increase some $300bn over 10 years…this is almost half the quantity claimed. Will probably be fascinating to observe the polarization between the political left and proper on this nation unfold, one factor is sure, these politicians can declare that they’re the beacons of hope for his or her constituents, when they’re nothing greater than mouthpieces for the very best bidders.
Lastly, on a sadder observe, Vanguard discovered Jack Bogle died in the present day. The monetary business titan single handedly paved the best way for passive index fund investing and turned Vanguard right into a behemoth with greater than $5 trillion in belongings, what a legend! Okay that does it cheers!
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