Category: zerohedge

Authored by Ryan McMaken via The Mises Institute,

Politicians from Alexandria Ocasio-Cortez to Dick Cheney are united in their agreement that deficits don’t matter. Of course, that’s exactly what a politician would say. Politicians score points by spending other people’s money, so naturally, they don’t want to hear anything about how prudence suggests it might be a good idea to not spend that extra 800 billion dollars they don’t have.

But there is apparently little concern in Washington, DC as the annual deficit — for a single year, mind you — approaches one trillion dollars for the first time since the hit-the-panic-button days of the Great Recession. Except that now huge deficits are coming during “good” economic times.

Moreover, as the Congressional Budget Office has forecast, the debt load is expected to rise to 125 percent of GDP over the 20 years. That’s higher than the US debt-to-GDP ratio during World War II.

This, of course, assumes no major geopolitical or economic disruptions, which would make things far worse.

For those who believe huge debts are no big deal, however, there’s still no need to worry. After all, they say, actual debt payments are still only a minor issue. In fact, they’re still lower than where they were during the early 1990s.

Consider the first graph, for example. If we take the federal government’s interest payments, and calculate them as a percentage of federal tax revenue, we find 12 percent of what the feds take in has to paid out as interest. Back during the early nineties, on the other hand, the feds were paying more than twenty percent of their tax revenue toward debt service.

Source Office of Management and Budget and US Bureau of Economic Analysis.

Of course, that’s not all due to debt load. A lot of it depends on the interest rate. Back in late 1990, for example, the target federal funds rate was over 7 percent. The 10-year note rate was around seven percent also — compared to around two percent today. Not surprisingly, the feds were paying more on the debt they owed than under current conditions with a note rate of two percent.

But, the CBO estimates the 10-year note rate to double between now and 2020. I’m skeptical it will rise that fast from its current low levels, but when it does go up, so will the amount of money the federal government has to devote to servicing the debt. And that means cuts to things like defense, social security, and medicare.

Moreover, as the debt gets bigger and bigger, the need to keep the interest rate low via central bank “quantitative easing” will become more important, meaning middle class savers will take more of a hit to savings accounts and pension plans.

But perhaps the most striking aspect of the growing debt is the fact there really is no end in sight, and the US has no chance of ever paying off the debt.

We can see this when we compare the total size of the debt with government revenue.

Comparing Debt to Tax Revenue

Part of the reason people have a hard time comprehending the sheer size of the debt is because it is often compared to total GDP size. For example, it’s easy to find online that the US debt-to-GDP ratio right now is around 105 percent. But what does that mean? One problem we encounter here is the fact when it comes to personal debt, people don’t think of making debt payments as a percentage of their household “GDP.” That wouldn’t make much sense since the ability to pay off debt usually depends on income.

So what is the national debt as a percentage of the federal governments income? Income, in this case is the federal government’s tax revenue. And it turns out by this measure, we’re in uncharted waters.

In fact, the national debt is now eleven times annual federal revenue. And as far as I can tell, that’s the highest it’s ever been. (In 1945, the national debt was $251 billion, and tax receipts were $45 billion, meaning the national debt was 5.6 times tax revenue that year.)

Specifically, in 2018, the national debt ($21.4 trillion) was 10.9 times the size of annual tax receipts ($1.9 trillion). That’s even higher than what it was during the dark days of the “stimulus” following the great recession. In 1981, on the other hand, the total debt load was only two-and-a-half times annual tax receipts.

From the perspective of household management, this is easier to comprehend. For example, if a household has an income-to-debt ratio like the federal government, that would mean an annual income of $100,000 and a debt load of a million dollars.

Now, at ultra low interest rates, if payments are interest-only, and non-debt-related daily expenses are fairly low, one could certainly manage this. But there are risks here. Interest rates could go up. Other expenses could rise. And in the end, the great-grandchildren are still paying off the debt for vacations and fancy their ancestors bought decades earlier. Even worse, if interest rates go up significantly, one’s great grandchildren have a lower standard of living because they have to devote more and more of their possible savings and consumption to unproductive debt service.

None, of this, however, is likely to convince those who think debt doesn’t matter. Some may still cling to the idea that the government can just print more money and purchase bonds to drive down interest and make payments.There are at least two problems that emerge here. The constant forcing down of interest rates is a problem for those who rely on pension funds and other investments that need relatively lower-risk yield to grow. Meanwhile, households that are on fixed incomes will be harmed by growing inflation, if it takes the form of consumer price inflation. If, on the other hand, the money-supply growth leads to asset -price inflation (which is what we have now) then this will make housing more unaffordable, while locking out lower-income and lower-net-worth people from a variety of assets, such as homes.

Now, none of this is an apocalyptic scenario, but it is a scenario in which people with low and moderate incomes must pay more, and are able to save less and invest less. It’s a scenario of a standard of living that in decline. It’s a scenario in which much of the population faces more roadblocks to wealth accumulation and must devote increasing levels of income and resources to paying off the debts of past generations. Government amenities such as welfare payments and transportation facilities must also shrink as more tax revenue must be spent on debt service. And, of course, the tax burden on ordinary people certainly won’t be going down.

Those millennials who weren’t scarred by the financial crisis and have subsequently been willing to risk their savings (what little they have) in the stock market haven’t established the best track record. Apps like Robinhood, which allows retail traders to sacrifice data privacy in exchange for free small-lot equity trades, offered a free introduction to speculation.

Unfortunately, millennial traders have demonstrated a penchant to latch on to trends from bitcoin, to tech to pot stocks (like Canopy Growth). Like that old adage, often attributed to Warren Buffett, millennials have been encouraged to “invest in what you know.”

Unfortunately, this advice hasn’t served them as well as they might have hoped.

To wit, millennial retail investors largely trailed the broader market over the summer, even as US equities climbed to new all-time highs. They were particularly hard hit by the explosion of volatility during the second half of August, as Brian Sozzi reports, citing proprietary data from Yahoo Finance.

As Sozzi reports, some of the most popular stocks purchased by millennials last month were also among the market’s worst performers, including Uber, Aurora Cannabis and Canopy Growth.

The top stocks bought by millennials in August were some of the worst performers in the market, according to new data from online brokerage house TD Ameritrade. Millennials were buyers of cannabis names Aurora Cannabis (ACB) and Canopy Growth (CGC) last month, which tanked 15% and 27%, respectively, per Yahoo Finance data.

They also snapped up ride-hailing outfit Uber (UBER), which saw 20% of its value go up in smoke as its CEO basically laughed at Wall Street on a conference call for demanding profits. Uber’s second quarter earnings release also broadly stunk, calling into question whether the company will ever turn a profit (especially amid fresh worries about new worker laws in California that have taken hold in September).

Fortunately, performance has started to turn around for millennials in September, as they snapped up shares of Disney, Microsoft and Amazon – all of which generally tracked the Dow and S&P 500.

Still, thanks to the poor performance of ride-share companies and pot stocks, millennials are entering the fall with a lot of red in their brokerage accounts.

More broadly speaking,as Sozzi reports, retail investors using TD Ameritrade’s platform have been net buyers of Disney, Amazon, Microsoft, Beyond Meat and Uber.

TD Ameritrade’s IMX index, which tracks retail investors’ exposure to equities through July (the data is reported with a brief lag), retail investors have continued to pull back in terms of their exposure to stocks even as stocks have resumed their march toward new all-time highs. With the September Fed meeting looming in the not-too-distant future, the question on every investors’ mind is whether stocks will return to all-time highs this month.

Judging by the data, it appears that the market chaos that broke out in Q4 of 2018 spooked retail investors, and they haven’t been willing to dial up their exposure to levels seen during the relative calm from 2017.

Something is not quite right here.

Despite The Fed signaling rate-cuts as far as the eye can see, US credit-card interest rates have soared to the highest since 2001.

And despite credit card rates being at 18-year highs, US revolving debt (largely made up of credit card debt) has exploded in July to its highest on record.

Source: Bloomberg

This was the biggest MoM jump in revolving debt since Nov 2017…

Source: Bloomberg

Is the American consumer really that healthy? The recent exuberance over retail sales gains seems to be largely predicated on the back of an average joe who is forced to use his high-cost credit card to cover everyday expenses.

While Elon Musk has been busy nervously trying to write off Porsche’s Taycan and apparently falsely claiming that he has time booked for the Model S at the Nurburgring next week, newly released estimated delivery numbers for August have the company’s skeptics smelling blood. 

For instance, Ed McCabe of TLF Capital, who has a $0 price target on Tesla, according to Business Insider.

For him, the newly release estimates of Tesla’s August delivery numbers, published by InsideEVs last week, show that “organic demand is extremely weak”.

The blog posted estimates of 1,050 for the Model S and 1,825 for the Model X – both meaningfully lower than August 2018. For the Model 3, the automaker is estimated to have delivered 13,150 vehicles, down from the 13,450 in August 2018. 

McCabe wrote in a report Thursday: “While there is no reasonable justification for a structurally unprofitable and horribly managed company to enjoy a $40 billion market cap, proponents of the stock tout its growth. That story is clearly over.”

But these weak numbers have done little to have Tesla update its guidance. In its most recent quarterly update, the company reaffirmed guidance of 360,000 to 400,000 deliveries worldwide for the year. These numbers haven’t been updated since.

Total sales stood at about 158,000 halfway through the year, which is less than half of the low end of the company’s guidance, meaning the company would need to see robust production in the second half of the year.

That doesn’t look to be the case, given the August estimates. 

McCabe said:

 “To reach the low-end of guidance Tesla needs to average 103K deliveries in the remaining two quarters of the year. To reach the high-end it needs to average 123K. Both would exceed Tesla’s second quarter record. Neither will happen. It’s also irrelevant. The company is structurally unprofitable. The more cars Tesla sells the more money it loses.”

He concluded his note last week by stating: “Remember that the staggering losses and cash burn have occurred while Tesla has had the electric vehicle market essentially to itself and Musk has promised imminent and sustainable profits and cash flow generation multiple times. Back-to-back quarters of negative revenue growth, increasing losses, and cash burn will make plain to even the most ardent believers that Tesla is not a viable business.”

Authored by Ron Paul via The Ron Paul Institute for Peace & Prosperity,

Former Federal Reserve official Bill Dudley’s recent op-ed calling for the Federal Reserve to implement policies that will damage President Trump’s reelection campaign states that such action would be unprecedented. Dudley claims the Federal Reserve bases its policies solely on an objective evaluation of economic conditions.

This is an example of a so-called noble lie – a fiction told by elites to the masses supposedly for the people’s own good, but really designed to maintain popular support for policies that benefit the elites.

Dudley’s noble lie is designed to bolster a rapidly (and deservedly) eroding trust in the Federal Reserve.

The truth is the Federal Reserve has always been influenced by, and has always tried to influence, politics.

President George H.W. Bush and other members of his administration blamed his 1992 defeat on then-Federal Reserve Chairman Alan Greenspan’s refusal to reduce interest rates. Greenspan was more cooperative with Bush’s successor, Bill Clinton. Lloyd Bentsen, Clinton’s first Treasury secretary, wrote in his autobiography that the Clinton administration and the Federal Reserve had a “gentleman’s agreement” regarding support for each other’s policies. Greenspan also boosted President George W. Bush’s “ownership society” agenda by lowering interest rates after 9-11 and the collapse of the tech bubble, thus creating a housing bubble.

Ben Bernanke, Greenspan’s successor, facilitated both Bush W. Bush and Barack Obama’s bailouts, “stimulus” spending, and massive welfare-warfare spending with record-low interest rates and quantitative easing. Speculation that the Fed was keeping interest rates low during the 2016 presidential campaign in order to help Hillary Clinton was fueled by the revelation that a Federal Reserve governor donated to Clinton’s campaign.

Presidents have always tried to influence the Fed — usually pushing for lower rates to (temporally) boost the economy. President Richard Nixon was recorded joking with then-Fed Chair Arthur Burns about Fed independence. President Lyndon Johnson shoved Fed Chair William Martin against a wall after an interest rate increase. Johnson’s frustration may have been because he realized that the success or failure of his guns and butter policies was largely out of Johnson’s control. The success or failure of presidents’ agendas is often determined by a secretive central bank’s manipulations of the money supply. No wonder presidents spend so much time trying to influence the Fed.

The Fed’s history of influencing, and being influenced by, presidents is one more reason why Congress should pass the Audit the Fed bill. Auditing the Fed is supported by almost 75 percent of Americans across the political spectrum, including such leading progressives as Bernie Sanders and Tulsi Gabbard.

My Campaign for Liberty is leading a major push to get a majority of Congress members to cosponsor Audit the Fed in order to pressure House and Senate leadership to hold a vote on the bill. The American people have had enough of noble lies about the Federal Reserve. It is time for truth; it is time to audit the Fed.

With the world and its pet rabbit demanding that central banks cut rates, increase QE, and forward-guide rates lower to infinity and beyond, US stock markets have responded by rallying aimlessly back within inches of all-time record highs.

The rampage higher in stocks has happened as earnings expectations have tumbled…

Which is a problem, because, as the New York Fed’s latest survey of consumer expectations shows, Americans haven’t been this unenthusiastic about US equity markets since Trump was elected…

So, as we noted recently, those lucky enough to be ‘in’ stocks, better hope that the C-suite keeps buying, because “the sole buyer of US stocks remain corporate buybacks, not institutions” as shown in the chart below.

This is notable not only because it means that without the buyback bid (made possible by record cheap debt, which is used to fund corporate stock repurchases) stocks would be far, far lower, but because it is a carbon copy of what we observed almost exactly two years ago, suggesting that between the summers of 2017 and 2019 absolutely nothing has changed.

And as a bonus, here is the reason why The Fed is worrying so aggressively about the economy…

Simply put, everyone is now saving money as hopes for higher rates in the future have collapsed.

Via SchiffGold.com,

Is the US losing its grip on the world? And could the dollar ultimately be dethroned from its spot as the world’s reserve currency?

We’ve reported extensively on countries working to undermine dollar hegemony and reduce the United States’ ability to weaponize the dollar as a foreign policy tool, along with the global gold rush on the part of central banks. Last week, Peter Schiff appeared on RT, along with former Pentagon official Michael Maloof, to talk about the world’s growing frustration with America. Peter said countries worldwide are ready to dump the US.

Maloof started off the segment saying that because the US has engaged in economic warfare with other countries using sanctions and tariffs, many countries are looking for alternatives. He said even strong allies like countries in Western Europe are starting to turn more eastward as a result.

Peter pointed out that the problems for the US started long before Donald Trump.

The real issue for the dollar and what’s going to sink the dollar is our own fiscal profligacy. And these large deficits, budget deficits and trade deficits, were here long before we elected Donald Trump.”

Of course, Trump hasn’t done anything about it.

In fact, the deficits are getting bigger, both trade and budget deficits. What has enabled this over the years has been the world’s willingness to hold US dollars as the primary reserve currency and to continue to loan money to Americans and to the US government so we can continue to live beyond our means. We can have enormous government programs that we don’t pay for and we can consume all kinds of goods that we don’t manufacture, and we can live in an economy based on consumption and debt without having to save or produce. The world has done that for us. And I think this is what’s going to come to an end. I think we’re going to see a collapse in the value of the dollar, and when the dollar does collapse, America’s power is going to dissipate. And Americans are going to have to deal with reality that we’ve hollowed out our infrastructure; we’ve been living beyond our means. And there’s going to be a day of reckoning for these years of excesses.”

Peter said the collapse of the dollar is inevitable.

We’re not going to stop with the profligacy until it collapses. As long as the world is willing to keep lending Americans money, we’ll keep spending it, particularly the government. So, the only thing that is going to cause a change is a crisis. And it’s going to be a dollar crisis. It’s going to be a sovereign debt crisis. It should have already happened. We’ve been able to kick the can down the road for many, many years. But the problem with all the can-kicking is the underlying problems have gotten so much worse. So, now it’s a much bigger problem that we’re going to have to deal with.”

Maloof said the Iran sanctions have backfired and pushed Iran into a closer relationship with China. Peter noted that Iran just entered into a deal with China under which the Chinese will help develop Iranian infrastructure in exchange for oil.

The sanctions that we have been imposing around the world, this is simply giving the world yet another reason to look for an alternative to the US dollar, which they should have been looking for a long time ago. But now, by flexing muscle we really shouldn’t be flexing, we’re in effect biting the hands that have been feeding us, and now they’re questioning whether or not they should continue to do that. And so we’ve accelerated the process of the dollar’s demise by antagonizing so many of the nations around the world that we really need to continue to hold the dollar.”

Peter said despite what Trump says, the US does not have China over a barrel in the trade war.

We have far more to lose. The Chinese simply lose a customer that doesn’t pay, that they have to vendor finance. But we lose a banker; we lose a supplier. The Chinese have been propping up the US economy. We have been screwing up the Chinese economy because in order to maintain this relationship, they have pursued reckless monetary policy. They have inflated bubbles. They have done things in order to artificially prop up the dollar so they can continue to sell products to people who really can’t afford to buy them.”

RT played a clip of Trump downplaying the amount of US debt the Chinese hold – over $1 trillion in US Treasurys. Peter called the president “delusional” saying that $1 trillion is just Treasury bonds. The Chinese also hold a lot of dollar-denominated debt in addition to the Treasury debt.

On the margin, that is a tremendous amount of money. If we lose Chinese lending, if the Chinese want to unload their dollar-denominated debt, President Trump seems to think there’s an ample supply of lenders that really want that debt. I don’t believe that they exist. I don’t know that there’s that many foolish people out there in the world that want to lend so much money to the US at such a low rate of interest.”

Peter said the rising price of gold reveals an unpleasant the truth – people are losing confidence in the dollar.

You can’t see it in the foreign exchange markets. The dollar hasn’t really started to fall against other fiat currencies. But that’s because all fiat currencies are falling against the dollar, against gold. But the strength of gold is showing an underlying weakness in the dollar that the FOREX markets aren’t showing yet. But they will.”

Source: Bloomberg

Peter closed out the segment saying the US stock market has much more to worry about than the trade war.

There are other problems that are much more important that are being ignored. This is a big fat, ugly bubble. Donald Trump was right as a candidate, and the air is going to come out of this bubble regardless of what happens with the trade war.”

As the RT anchor put it:

So, we’re not surprised gold is doing so well.”

In the latest legal push that could ultimately result in the break-up of one of the world’s largest tech firms, a bipartisan group of more than 40 state attorneys general, led by Texas’s Ken Paxton, will unveil a sweeping anti-trust investigation against Google parent Alphabet Inc.

The anti-trust investigation, which was previewed late last week in a leak to the Wall Street Journal, aims to hold Alphabet accountable for the extreme concentration in the US technology industry. Specifically, the AG’s case will focus on Google’s influence in search and the digital advertising market, and whether the Silicon Valley giant’s overweening influence harms rivals and consumers.

Part of the message from Monday’s press conference will be asking Google employees who might have information about Google’s abuses in the online advertising market to come forward.

The investigation is being pursued alongside a flurry of federal lawsuits and investigations against the biggest tech firms being led by the DoJ (with the FTC assisting), as well as another investigation brought by state AGs against Facebook.

Nearly all of the states are participating in the investigation against Google, and/or a similar anti-trust investigation against Facebook. One notable exception: California isn’t participating in either suit (and Alabama will sit out the Google probe). The investigations come on the heels of a $5 billion settlement between Facebook and the FTC, which resolved some of the federal government’s claims over the company’s user-privacy violations.

The press conference kicking off the investigation will take place on the steps of the Supreme Court Monday afternoon.

According to Politico, eight attorneys general will make up what’s known as the “executive committee”. These states include: Texas, Arizona, Nebraska, Louisiana, North Carolina, Colorado, Iowa and Mississippi.

Watch the press conference live:

AGs will explore whether Google and its fellow tech behemoths are stifling start-ups, delivering worse service and siphoning off too much personal data to bolster their bottom-lines at the expense of consumers.

“The growth of these [tech] companies has outpaced our ability to regulate them in a way that enhances competition,” Keith Ellison, a Democratic attorney general from Minnesota who is signing on to the effort to probe Google, told the Washington Post.

“They need to be regulated,” he continued, “and my view is, it’s the state AGs job to do it, particularly when the federal government is not necessarily a reliable partner in the area.”

State AGs have been warned that Google will do everything in its power to “stonewall” these anti-trust investigations using formidable defensive tactics, despite the company’s promises of cooperation.

“The attorneys general have found they can actually rewrite the rules for entire sectors and individual companies through these cases,” said Rob McKenna, a former attorney general in Washington state and now a partner at the law firm Orrick. “The attorneys general have a lot of power here to achieve regulation by litigation.”

While Washington has typically taken the lead in investigating anti-trust matters dating back more than a century to the trust-busting days of the Gilded Age, state AGs are coming off a notably successful run, including their successful takedown of Purdue Pharma and other drug makers over their role in fostering the opioid crisis.

Among the most underreported but explosive stories of the past six months has been growing signs of Saudi Arabia’s nuclear ambitions. But now there are new questions over whether the kingdom’s future planned two nuclear power reactors will be limited to purely energy-related and peaceful purposes. 

On Monday the kingdom’s nuclear energy minister said Saudi Arabia wants to enrich uranium for its nuclear power program, Reuters reports — an announcement likely to hinder talks with Washington over American companies’ potential help in establishing its atomic energy program. 

“The world’s top oil exporter says it wants to use nuclear power to diversify its energy mix, but enrichment also opens up the possibility of military uses of uranium,” Reuters noted. 

“We are proceeding with it cautiously… we are experimenting with two nuclear reactors,” Energy Minister Prince Abdulaziz bin Salman said in reference to a proposed plan to issue a tender for the country’s first nuclear reactors, preliminary talks of which are underway for the multi-billion-dollar project.

Reactors even for peaceful energy purposes require that uranium be enriched to around 5% purity, but once the technology is in place, it becomes ease to go beyond that. As Reuters describes:

Reuters has reported that progress on the discussions has been difficult because Saudi Arabia does not want to sign a deal that would rule out the possibility of enriching uranium or reprocessing spent fuel – both potential paths to a bomb.

International concerns about the dual technology helped lead to the 2015 nuclear deal between Iran and global powers. Under the deal Iran can enrich uranium to around the normal level needed for commercial power production.

In April, American lawmakers voiced alarm over the kingdom’s possibly secretly pursuing nuclear weapons and questioned the US Department of Energy over the degree to which they’ve already received any level of assistance from the United States.

This after in November of last year crown prince Mohammed bin Salman said, “if Iran developed a nuclear bomb, we will follow suit as soon as possible.”

MBS (who architected Khashoggi’s murder) wants US nuclear☢️ technology BUT doesn’t want intrusive inspections to prove the peaceful nature of the program.

A country that can’t be trusted with a bone saw should NOT be trusted with nuclear weapons.
https://t.co/8TrWSbWWye

— Rula Jebreal (@rulajebreal) November 23, 2018

At that time a letter sent from a bipartisan group of senators to the Trump administration said “Many in Congress, therefore, worry that Saudi Arabia’s interest in someday producing its own stocks of nuclear fuel – despite the fact the Kingdom could purchase fuel on the international market more cheaply – could lead to it to divert fuel to a covert nuclear weapons program.”

There’s continuing suspicion that the Energy Dept. under Rick Perry has already allowed US companies to share sensitive nuclear information with the Saudis without appropriate congressional oversight and restrictions. 

Authored by Sven Henrich via NorthmanTrader.com,

Replay

Are markets setting up for a replay of last fall or we just drifting higher on hopium and coming successful central bank intervention?

I remember last September very well.  All our technical charts were screaming sell, yet markets kept levitating higher. Everybody was screaming bullish, GDP growth was rising, companies were showering buybacks on the market and analysts were shouting over each other calling for ever higher price targets. Index price targets, stock price targets. $DJIA went on to make a new all time high on October 2nd following the $SPX highs in September of 2018:

Positioning for the fade was difficult, volatility was non existent and people voicing bearish opinions were viewed as absolute morons. I had written Lying Highs on September 2nd and my analysis looked dead wrong.

Yet it turned out to be the best selling opportunity since 2011. We all know what happened after that:

Why am I mentioning all this? Because here we go again in September and markets are drifting higher ironically from  the same base as last year. 2900. We haven’t gone anywhere in a year, yet things are objectively worse than last year.

Growth is worse, earnings growth is worse, buyback growth is shrinking, as is capex and employment growth. What is different? Central banks of course and that is again the curveball that makes any bear feel stupid as nothing matters when central banks are in charge and to me it remains the biggest risk to the bear case.

Intellectually I can rage against the insanity of it all, but that won’t change market direction. Yes I can argue the ECB cutting rates this week and relaunching QE only 9 months after ending is pathetic, but nevertheless they are going to do it anyways no matter the consequences or the efficacy of it all.

And then the Fed doing the same rate cutting gig no matter how wrong they were last year forecasting 2019. And bulls totally wrong about 2018 on equities and totally wrong on yields and growth for 2019 get to get bailed out again and look right.

And so yes, I get it, there is a building sense that bears are running out of time here. After all they’ve had every excuse to make something happen in August beyond a 4% pullback.

That’s how weak bears are, or rather that’s how the strong the pull toward central bank meetings is. Central banks remain in full control despite all their mistakes. They keep being wrong yet face no consequences by markets, after all bad news doesn’t matter all, we’re back to within 1.5% of all time highs. One more magic headline and we’re at new highs. Who cares about earnings or growth or valuations. None of it matters is the impression one is left with.

And I get the argument that bears may be running out of time.

For one, the 2019 market keeps running on that pre-election year seasonal chart we discussed in The Bull Case:

Ironically that chart also says to sell strength in September/October for another larger pullback into October/November and then buy that for that big year end rally.

And be clear most years are like this. Last December was a rare fluke. Only happened once before in 2000. All other years have seasonal strength into year end. The question is from where and when.

And so here we are again signals and warning signs are being ignored and markets levitate higher, indeed you can get a glimpse of this debate in my discussion on CNBC this morning:

My crooked tie aside (we were fiddling with mic placement just before I got on air is my excuse and I’m sticking with it 😉 I found the discussion insightful as it’s perhaps reflective of sentiment.

A couple of points I couldn’t make on air: “if you’ve been short for the past 300 handles how much more convincing do you need”? The segment ended there so I couldn’t respond but my response is that this is a bit of red herring, sorry Jeff. I don’t know anybody that’s been short for 300 handles, not sure that’s even possible, but I would point out that’s not an analytical point predictive of future market direction. It’s a hypothetical at best.

Perhaps there is a running myth that people critical of markets are always holding short from much lower and hence they are made to look wrong. We view positioning as a flexible exercise long or short depending on the set-up, but let’s face it, these markets haven’t gone anywhere on a broader basis since January 2018:

So I could make the corollary argument (also not predictive of future direction) and say that if you’ve held long small caps, banks and transports since January 2018 how much more convincing do you need as you’re down significantly on these? Which of course is the point I tried to highlight in the segment with $XVG:

The broader market is not participating and rallies keep being drive by flows going into large cap stops via buybacks and passive allocations.

But Jeff is right, the ECB going full Super Mario this week could certainly be a trigger that pushes $SPX above 3,000 and that’s also reflective of the Measured Move we discussed. All possible.

But I don’t know where Jeff sees ‘booming’ growth, I get that this may be the impression he has from meetings, but the data shows differently for now.  This is not booming growth:

So I get it and I agree with Brian Sullivan, you can moan about central banks all you want, but that doesn’t make you money and hence flexibility remains the name of the game.

From my perch nothing is proven, either from the bear or bull side. Yes you may point to this year’s year to date gain, but know of course it was mainly driven by the vast oversold readings in December of 2018 and has been a free money carrot since then, not a growth expansion story.

These next 2 weeks will be of great interest. Can markets break out in earnest based on central bank intervention or will they get disappointed or again move toward new highs that won’t be sustained?

We keep analyzing structures and technical patterns and, for now, these suggest that bears still have sizable potential room to play in 2019 as signals are once again ignored and hopium is the primary price discovery mechanism of this market. I can’t say that this will not be enough, it may well be, but watch out if it isn’t.

For there to be confidence in new highs we would need to see the market to broaden out. Otherwise, new highs remain selling opportunities as they have been for the past 18 months. Note also the recent 2019 trend break on $SPX. Bulls need to repair that technical break and start showing rallies based on fundamental improvement as opposed to intervention hopium alone.

Bottomline: Investors are reliant on hope that central bank efficacy remains control over the market construct and that a trade deal will reflate investment growth and at risk that disappointment on these fronts can lead to larger sell-offs.

And as long as markets are reliant on hopium versus fundamental driven growth markets are at risk of a replay of last year as technical signals currently do not confirm or support the sustainability of any new highs should they come about as a result of central bank intervention.

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