Afternoon all.
The bulls have been in charge again this week, most major indexes in the Green, spurred into the end of week by the US re-opening plan and some news that a potential therapeutic is showing good results in a trial.
I’ve taken a few more profits into this strength but I’m increasing concerned that this rally has a weak foundation, the FED-put giving too much confidence to speculators when the underlying economic structure of the global economy is setting up for a substantial shock.
This has lead to me putting more hedges in place as capital was freed up from taking profits and while this has constrained the recovery it adds safety and some profit opportunities for what I think is coming.
We can see the rush the US is now in to re-open, which President Trump even appearing to incite civil unrest with a series of tweets aimed at Democrat lead states encouraging his supporters with commands such as “LIBERATE MICHIGAN”.
I think this is extremely dangerous and his general tone is that the US should be open now and that will encourage millions of people to start going about life in a more normal way and ignoring the risks.
But all this has also helping give expectations that they US will be back firing on all cylinders shortly. With 22 million jobless claims in the last few weeks alone and rapidly increasing debt across individuals, corporations and state/federal government there is just no way for this to be true.
I think there are also too many assumptions being made about the US being immune to what is happening in the rest of the world. While the US is talking like they are now getting over the virus outbreak there are worrying trends across the world which has implications for global trade activity.
There are many countries that are not being talked about where cases are starting to accelerate. I will add some charts on my blog to show how serious this is, but includes countries like Russia and Japan. There is also the case of Singapore which is suddenly experiencing a very worrying second wave after they tried to ease lock down measures, which is a lot worse than the first wave where they appeared to have it very tightly controlled. The US could be setting themselves up for this kind very scenario.
The US exports nearly $2.5 trillion in goods and services and the global recovery picture will be slow and drawn out in many regions, reducing export potential, international travel and general economic activity.
There is also the issue of President Trump’s approval rating which has been falling and market assumptions that a Republican will be the next President could also come into question if the 3-Phase re-opening plan in the US does not prove to be successful. If they start to price in an increasing chance that Joe Biden could be the next President then that could prove to be an added stress against stocks moving higher.
The FED and the Treasury are carrying markets right now and investors have been willing to lean on them as hard as they can to test their resolve. I’m going to remain cautious while we see what happens when this rally finally exhausts itself. There is some terrible economic data on the way when April focused stats start to appear and I think how weakened the ‘consumer’ is going to become from a global perspective is being underestimated right now.
I’ll probably add some more thoughts to this when I post it my blog later with additional charts, but for now I’ll leave it here.
Stay safe, thanks for your time.
$SPX500 $DJ30 $NSDQ100
