We're going into late September and we really should be back at school. The bears are getting schooled by a market that doesn’t want to drop. Well, they haven’t been helped by circumstances. Whatever could go wrong this month, has not gone wrong. When we are dealing with long-term cycles as we are now, all it can take is one push to set a new paradigm in motion.
The hurricanes hit but Florida did not get the kind of widespread destruction that would put a serious dent in the financial system. People have said it wasn’t as bad as it could be. That’s true in a macro sense but don’t tell it to those personally involved. Seriously, if Irma hit a huge population center down the middle of the strike zone the conversation might be very different. The debt ceiling can got kicked down the road out of September. Trump reached across the aisle to make this deal but this time everyone involved gets high marks for not allowing hurricane relief efforts to become a political football.
We are now even promised a view of the tax plan to be released into committee in a week from now. Whether that happens this year is another matter, fact is taxes are off the table for now right.
As far as North Korea is concerned, I’m going to line up with Dr. Steve Pieczenik who believes we are not going to have a nuclear war either with China or Kim Jung Un. For those of you who don’t know, Dr. Pieczenik is the real-life Jack Ryan in the Clancy novels. He’s right a lot more than he is wrong. Basically, his view of North Korea is they don’t trust us and Mr. Un wants to be sure he never ends up like Saddam Hussein. All of this ongoing nonsense could be pure political theatre. Think about it, missiles have been flown directly over a sovereign nation’s airspace. I’m talking about Japan and what has been done about it?
So, with all of this off the table, is it time to get bullish again? Let me put it to you this way. The low for the VIX on Friday was 10.00 on the button. That’s historically complacent so nothing has changed. But the market may have revealed part of its hand on Friday.
The DAX and CAC were flat. U.S. markets were up. The FTSE got crushed. London suffered yet another terrorist attack. Here’s what concerns me. First, let me show you the market from July 2005. The attack on the London transportation system was a major negative headline that was so upsetting it was used as a contrary indicator to end a correction in a bull market.
Now? The only chart that got hit was the FTSE. That means the market is reacting to something which is personal. France wasn’t hit, it wasn’t personal to them. Many times, a market won’t get hit until an event becomes tangible to a specific sector. For instance, MRK got hit when their Keytruda drug had a phase 3 failure. Part of the problem is we are slowly becoming inured to the bad news. To a certain degree, we are accepting that terrorism is a part of life in the big city. In the twelve years since that attack, we’ve lost some of our fighting spirit. It’s also part of the mass crowd complacency. As long as it happens to someone else the crowd can rationalize it. That’s very dangerous because one of these days, it’s going to catch up to the rest of us.
Risk remains very high. Who is to say something won’t come down the pike tomorrow or next week? Another condition to consider is when markets want to turn they will find any excuse. When the crowd concludes the path is clear because they don’t see any negative catalyst on the horizon, one will appear as if by magic.