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Ever since the Federal Reserve launched ‘Not QE’ and President Trump ramped up tweets and comments of an imminent trade deal since October (or in one tweet, a fake trade deal), the S&P500 has had zero pullbacks, simply, it has gone vertical. 

International Financing Review (IFR News) has said, “What is most striking about the rally is the lack of any correction despite plenty of concerns that a 2-3% drop is just around the corner.”

Refinitiv data shows that in the last 35 sessions, the S&P500 has gone without a 0.5% correction to the downside. 

“You have to go back all the way to Nov 2017 to see an environment where the lack of correction was greater than the current setup. Back then the S&P500 did not fall by more than 0.5% in a single day for 50 consecutive days. But don’t take our word for it, just look at the chart below that takes us back to June 2010 to see the extraordinary nature of the price action,” IFR said. 

President Trump’s “trade optimism” and the printing press at the Federal Reserve have also pushed a narrative that the global economy is going to rebound in the coming months, and a huge upswing will be seen across the world. Much of that is fantasy, as China’s credit impulse continues to roll over, and the global economy continues to decelerate, without China, there can be no massive upswing in the global economy. Though we don’t discount the idea, there could be stabilization; still, that would produce disappointment. 

All this excitement of possible trade deals, central bank liquidity, and the prospects of a massive upswing in the global economy in early 2020 have forced consecutive record shorts in the futures for VIX non-commercial spec positioning, with the latest print of -218,362 the highest on record. 

While nothing lasts forever, there are obviously imbalances that are building in markets that have been created on weak narratives, such as “trade optimism” and a global recovery – if for whatever reason one of those narratives breaks down, then perhaps, as Charles Hugh Smith via OfTwoMinds blog, explains: markets are in blowoff tops. 

We all know what happens next…

Authored by Walter Williams, op-ed via Townhall.com,

Former presidential candidate Beto O’Rourke said that racism in America is “foundational” and that people of color were under “mortal threat” from the “white supremacist in the White House.”

Pete Buttigieg chimed in to explain that “systemic racism” will “be with us” no matter who is in the White House.

Senator Cory Booker called for “attacking systemic racism” in the “racially biased” criminal justice system.

Let’s follow up by examining Booker’s concern about a “racially biased” criminal justice system.

To do that, we can turn to a recent article by Heather Mac Donald, who is a senior fellow at the New York-based Manhattan Institute. She is a contributing editor of City Journal, and a New York Times bestselling author. Her most recent article, “A Platform of Urban Decline,” which appeared in Manhattan Institute’s publication Eye On The News, addresses race and crime. She reveals government statistics you’ve never read before.

According to leftist rhetoric, whites pose a severe, if not mortal, threat to blacks. Mac Donald says that may have once been true, but it is no longer so today. To make her case, she uses the latest Bureau of Justice Statistics 2018 survey of criminal victimization. Mac Donald writes:

“According to the study, there were 593,598 interracial violent victimizations (excluding homicide) between blacks and whites last year, including white-on-black and black-on-white attacks.

Blacks committed 537,204 of those interracial felonies, or 90 percent, and whites committed 56,394 of them, or less than 10 percent.

That ratio is becoming more skewed, despite the Democratic claim of Trump-inspired white violence. In 2012-13, blacks committed 85 percent of all interracial victimizations between blacks and whites; whites committed 15 percent. From 2015 to 2018, the total number of white victims and the incidence of white victimization have grown as well.”

There are other stark figures not talked about often. According to the FBI’s Uniform Crime Reporting for 2018, of the homicide victims for whom race was known, 53.3% were black, 43.8% were white and 2.8% were of other races. In cases where the race of the offender was known, 54.9% were black, 42.4% were white, and 2.7% were of other races.

White and black liberals, who claim that blacks face a “mortal threat” from the “white supremacist in the White House” are perpetuating a cruel hoax. The primary victims of that hoax are black people. We face the difficult, and sometimes embarrassing, task of confronting reality.

Mac Donald says that Barack Obama’s 2008 Father’s Day speech in Chicago would be seen today as an “unforgivable outburst of white supremacy.” Here’s what Obama told his predominantly black audience in a South Side church:

“If we are honest with ourselves,” too many fathers are “missing — missing from too many lives and too many homes. They have abandoned their responsibilities, acting like boys instead of men.”

Then-Senator Obama went on to say,

“Children who grow up without a father are five times more likely to live in poverty and commit crime; nine times more likely to drop out of schools and 20 times more likely to end up in prison.”

White liberals deem that any speaker’s references to personal responsibility brands the speaker as bigoted. Black people cannot afford to buy into the white liberal agenda. White liberals don’t pay the same price. They don’t live in neighborhoods where their children can get shot simply sitting on their porches. White liberals don’t go to bed with the sounds of gunshots. White liberals don’t live in neighborhoods that have become economic wastelands. Their children don’t attend violent schools where they have to enter through metal detectors. White liberals help the Democratic Party maintain political control over cities, where many black residents live in despair, such as Baltimore, St. Louis, Detroit, Chicago.

Black people cannot afford to remain fodder for the liberal agenda. With that in mind, we should not be a one-party people in a two-party system.

One month after the Fed “modestly” downgraded its outlook on the US economy from “modest to moderate” growth to “slight to modest pace”, there were no notable changes in the latest, just released November Beige Book, in which the Fed said that at the national level, economic activity expanded “modestly” from October through mid-November, similar to the pace of growth seen over the prior reporting period.

The good news for the US economy, which for the past two quarters was almost entirely driven by consumer spending…

… is that most districts reported “stable to moderately growing consumer spending”, and increases in auto sales and tourism were seen across several Districts, even if St Louis noted that “multiple auto dealers continued to note seeing an increased preference for used and low-end vehicles.”

In welcome news for the US manufacturing recession, more Districts reported an expansion in the current period in manufacturing, than the previous one, even though the majority continued to experience no growth. Meanwhile, the picture for nonfinancial services remained quite positive, with most Districts reporting modest to moderate growth. Some more perspectives on the economy from sectors including:

• Transportation activity was rather mixed across Districts. Reports from the banking sector indicated continued but slightly slower growth in loan volumes.
• Home sales were mostly flat to up, and residential construction experienced more widespread growth compared to the prior report.
• Construction and leasing activity of nonresidential real estate continued to increase at a modest pace.
• Agricultural conditions were little changed overall, remaining strained by weather and low crop prices.
• Activity in the energy sector deteriorated modestly among reporting Districts. Outlooks generally remained positive, with some contacts expecting the current pace of growth to continue into next year.

While the economy was roughly unchanged over the past month, the Fed founds that employment continued to rise slightly overall, even as labor markets remained tight across the U.S. Several Districts noted relatively strong job gains in  professional and technical services as well as healthcare, while reports were mixed for employment in manufacturing, with some Districts noting rising headcounts while others noted stable employment levels and one District reported layoffs. And while there were scattered reports of labor reductions in retail and wholesale trade, the prevailing complaint was one of continued labor shortages as the vast majority of Districts continued to note difficulty hiring driven by a lack of qualified applicants as the labor market remained very tight.

The shortage of workers spanned most industries and skill levels, and some contacts noted that their inability to fill vacancies was constraining business growth with multiple contacts reporting “bringing back retired workers as a way to fill openings.” Moderate wage growth continued across most Districts, and the Fed said that wage pressures intensified for low-skill positions, even if reports from both the BLS and Umich shows that wage growth has now peaked and is moving lower.

Finally, prices rose at a modest pace during the reporting period, with the Fed noting that reports regarding input costs and selling prices in the manufacturing sector were mixed, with some Districts noting deceleration in prices, while others cited increased cost pressures and a few indicated little to no change. Of note, some retailers mentioned higher costs, which contacts in some Districts attributed to tariffs. And yet, it will come as great news to Trump that most firms’ ability to raise prices to cover higher costs remained limited, suggesting there was no tariff passthru inflation, though a few Districts noted that companies affected by the tariffs were more inclined to pass on cost increases.

At the same time, service sector prices in reporting Districts were mostly flat to up. Energy and steel prices were flat to down, while reports on construction materials and agricultural commodity prices were mixed. Overall, the Fed said that firms generally expected higher prices going forward. Now if only the Fed would also join them and hike rates…

Quantifying the shift in the economy, while respondents showed a modest increase in concerns about trade, with “Tariff” mentions rising from a 4 month low of 24 to 30, mentions of “slow”-ness eased somewhat, and dropped from 56 back to 51 last month, which is to be expected in light of the modest improvement in the broader outlook.

What is perhaps more amusing is that one month after one Fed region blamed sharks and tornadoes for the recent downgrade in the economic outlook, this month it was revealed that it wasn’t the weather after all, but rather “a much deeper contraction in capital equipment spending.” Surely, that mistake is easy to make.

 A heavy equipment producer noted a slowdown in sales that they initially blamed on heavy rainfall this year, but said this “masks a much deeper contraction in capital equipment spending”

Oops.

Finally, here are some of the most notable Beige Book anecdotes from the various regional Feds, as picked by Bloomberg:

• Boston: Office leasing demand in Boston has been robust even as leasing activity has slowed because of extremely low vacancy rates
• New York: Prices for Broadway theater tickets have edged down and are slightly lower than a year ago
• Philadelphia: One staffing firm reported more difficulty recruiting for firms that only offered minimum wage, and another indicated that a different staffing firm was deploying yard signs to recruit for jobs paying $16 an hour
• Cleveland: A clothing retailer reduced the use of price discounting to offset higher costs resulting from tariffs. By contrast, a food retailer said that while tariffs had increased costs, the company ‘cannot raise prices on a whim’ because of fierce competition
• Richmond: A Virginia yarn manufacturer reported that economic uncertainty is hurting demand by leading some customers to reduce inventory levels
• Atlanta: Monthly Mississippi casino gross revenues were up for the first nine months of the year compared with the same time frame in 2018
• Chicago: Contacts indicated that the labor market was tight and that it was difficult to fill positions at all skill levels. Multiple contacts reported bringing back retired workers as a way to fill openings.
• St. Louis: Multiple auto dealers continued to note seeing an increased preference for used and low-end vehicles
• Minneapolis: A heavy equipment producer noted a slowdown in sales that they initially blamed on heavy rainfall this year, but said this ‘masks a much deeper contraction in capital equipment spending’
• Kansas City: The number of active rigs continued to decline across most states but was primarily driven by a decrease in Oklahoma
• Dallas: Contacts noted continued concern among agricultural producers over trade issues with China but noted there was increased optimism regarding trade talks and the possibility of some tariffs being removed
• San Francisco: A few businesses in higher cost urban areas noted efforts to relocate jobs to lower cost areas of the district in order to contain labor compensation

The bottom line: the Beige Book will just weak (or perhaps strong) enough to justify the Fed’s decision to stay “patient” on future interest-rate hikes (or cuts) amid a healthy, but modest economic expansion, one where the only thing that matters is the S&P500.