Christmas in August? Politics and markets are colliding!
Do you believe in Christmas in August? Better get used to it, we are upon the traditionally slowest volume week of the year other than Christmas. This year, a lot is going on which is simmering under the surface. We may just get a break from it this week.
Last week, Zero Hedge reported two of the world’s most renowned hedge fund managers, Ray Dalio and Lord Jacob Rothschild, are very concerned about the political climate in the world. While Dalio is not encouraged by what he sees, Rothschild observes, “Politics will probably play a greater role in affecting markets than we have experienced any time before in our lifetimes but in a manner broadly similar to 1937.”
If two of the wealthiest men on the block believe politics and the markets are colliding, who am I to argue?
That being said, in the controversy department, Gary Cohn was under a lot of pressure to resign from Jewish groups due to the lingering bad feelings over Trump’s ‘both sides’ comments. Fox reported he drafted a resignation letter but did not act on it. Who gets these leaks? Mnuchin comes out and tells the world there is zero chance the debt ceiling won’t be raised. But Yellen didn’t say much concerning monetary policy and both the euro/U.S. dollar (EUR/USD) currency pair and the Greenback went ballistic in opposite directions. What people need to be concerned about is the Euro is now above the 200-week moving average. That also means it is well above Charlie Hebdo levels, which is where Draghi started European quantitative easing in earnest. Who really thinks Europe is better off now that it was in January 2015?
What do they have to show for it? Not much. Europe has more crime, unrest and terrorism while less tourism than at any time in our lifetime. European civilization is on the cusp of being interrupted for the third time in 100 years. Remember, I’m not telling you this, I’m channeling Lord Rothschild.
When it comes to U.S. markets, the Transports broke the 200-day moving average for the first time. In recent updates, I asked, how many times can they go to the well? As it turns out they broke the 200 but as of the weekend sitting right on the 50-week moving average. So, the next real distribution day has the potential to create the first long term damage technical damage to the market. It wasn’t that long ago, July 4th I recall the Transports issued a buy signal and it confirmed fresh highs in the Dow.
As if we needed more problems, our friends in Texas got hit with the monster storm. Of note is the fact oil has not skyrocketed like it did back in the days of Katrina. In those days, everyone was concerned about dwindling supply if rigs or refineries were put off line for any length of time. Now with healthy supply, the concern is demand. Over the weekend oil was holding steady but on Monday morning it made a thrust lower.
For a guy that was bullish for so long, I was one of the first to get long term bullish in 2009-10, I’ve become a person that is incredibly concerned with just about everything I see. Look at the HGX, it is now looking up at a 50-day moving average where the slope is changing and starting to roll over.
If Transports go we can ill afford to lose housing as well. If both sectors tank, I wouldn’t be as concerned about the markets anymore. I must come here and tell you the chances of a new recession would only be about 100%.
The way I’m looking at this, the only way we avoid this pessimistic scenario is if we get the tax reform the market has been banking on all year. Now the politicos are talking about tax reform during this Congressional session. That means next year. We’ll see, Congress is not in session yet but who of you has a lot of confidence they will get it done? I don’t care for Gary Cohn but I do like Mnuchin. That being said, the tea leaves are saying that if either of them are forced out which Cohn being the higher probability you may kiss tax cuts good bye for this calendar year. I wish the forces who only consider their politics, of which are too numerous to count, would realize this fact for the good of the country.