The Market Radar

We anticipate monitor and comment on market-moving global economic and geopolitical issues.  No dark side brooding, no wanting the world to end, no political rants.  Traders, investors, policymakers, or market observers can’t afford to ignore us.  In one word, perspicacity.

An educated citizenry is a vital requisite for our survival as a free people– Thomas Jefferson

By seeking and blundering, we learn. – Johann Wolfgang von Goethe

I can calculate the motion of heavenly bodies,
but not the madness of people [markets]. – Isaac Newton

     The four most dangerous words in investing are, ‘this time is different.” – Sir John Templeton

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Putin’s Nuke Threat, Biden’s Decision Tree

That brings us to the other notable part of Putin’s call-up speech: the not-very-veiled nuclear threat. Would he really go that far?

There are plenty of reasons to suggest that he wouldn’t. A tactical nuclear strike wouldn’t do much to advance his war effort; holding freshly nuked territory isn’t an attractive proposition; and fallout might blow back into Russia. Yet Hal Brands believes it’d be wise to take the threat seriously. Using a nuke might not actually backfire: Those desperate to end the fighting immediately may be willing to make concessions to Putin. Retaliating with nuclear strikes risks an escalatory spiral. Plus, as Leonid noted in a Twitter Space with Clara Ferreira Marques and Bobby Ghosh on Thursday: “If [Putin] loses, he’s finished and it’s not going to be very nice for him.” At this point, Putin may be willing to do anything to ensure survival.

All these things are no doubt weighing on US President Joe Biden’s mind right now. No one rational would envy the decisions he’ll have to make in the coming weeks and months. – Lara Williams, Bloomberg 

Great podcast on all of the above:


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Global Macro Watch

What a historic week in all global markets!

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Friday CK Chart Fest

King Of Kings: The U.S. Dollar

Capital Flight In EM

Safe Haven Currencies Diverge

Inflation In Japan, WTF? 

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Pre-Election Italian Sovereign Spreads Blow Out

Chinese Yuan Tanking

Treasury Bond ETF (TLT) Suffers Worst Drawdown

Logistics Loosening Up

U.S. Age Discrimination By Industry

Comparative Interest Rate Hikes 

Defense Spending Comps

Easiest & Hardest States To Vote

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The Great Reset: “Saluta la signora Mussolini, il nuovo PM d’Italia”

As Wall Street whines about the Fed and seems to only care about getting stock prices higher, very few people we know can connect the dots and understand that the world economy and the post-war global geopolitical order, for that matter,  are in the midst of “The Great Reset.” 

All things as we have known and have become comfortably numb with, such as zero interest rates, negative real interest rates, quantitative easing (digital money printing), and Pax Americana, are being upended and overturned.  Beware of recency bias, folks, as the global structural shifts and changes are now ubiquitous. 

Sunday’s election in Italy is just a fractal of the Great Reset,  which will usher in the hard-right new prime minister, which, we believe, history will look upon as “Ms. Mussolini.” 

The eurozone is in trouble with a capital T

Giorgia Meloni’s electric performances at political rallies have made her a virtual shoo-in to become Italy’s first female prime minister in Sunday’s ballot. She’ll also be the first to campaign with the flame symbol, evoking the former fascist leader, Benito Mussolini.

The prospect of a charismatic nationalist taking power with almost no government experience has investors and officials on edge. Italy, of course, is wrestling with the fallout from the most serious conflict in Europe since WWII. But the country has been adrift for years, struggling to hit on a formula which can unlock its potential while staying true to its identity. – Bloomberg

Our good friend, Professor Constantin Gurdgiev, in his priceless sense of humor, put it this way, 

P.S.  My 19-year-old daughter is traveling in Italy and promised she would pick up and bring back a few copies of the major Italian post-election newspapers from Monday morning.  

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Is The Fed’s Heavy Lifting Almost Over?

Don’t bank it.  Avoiding a recession is not part of the Fed’s explicit dual mandate

The Federal Reserve System has been given a dual mandate—pursuing the economic goals of maximum employment and price stability. – St Louis Fed

Even after today’s 75 bps hike, the real Fed Funds rate (see chart below) remains at about -5 percent.  Note from the chart the economy has never kicked into a recession with a negative real Fed Funds rate.  It’s amusing to watch the market watchers muse over how big a recession the Fed will create. 

Yes, a recession is highly probable, and the timing is difficult, but markets have a yuuuge “failure of imagination.”  There can be, simultaneously, a recession in economic activity, relatively high and sticky inflation, and relatively low unemployment.  

Chairman Powell stated in his presser today about moving real rates to positive levels across the yield curve.

You wanna be at a place where real rates are positive across the entire yield curve – Chairman Powell, 18:50 into the video

This time could be different, it is pretty weird out there, making monetary policy very difficult,  but we run when we hear those four words

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Radar Watch: The Copper/Gold Ratio

We don’t think copper has a Ph.D. in economics but possibly is an ABD

If you are not buying copper hand-over-fist here, at $3.54 per lbs., you should be. We doubt there is enough copper in the world to electrify the transport sector alone.  

According to Jim Paulsen, chief investment strategist at the Leuthold Group:

“The copper/gold ratio is nearing a new high! Undeterred by yet another stock market decline, confidence nonetheless appears to be gaining ground over fear. Is Dr. Copper picking up on something positive coming soon?”

Copper, an ubiquitous metal with wide-ranging uses from construction involving wiring and plumbing to being a key ingredient in the transition to green energy, is typically purchased when investors feel good about the economy. This is why Paulsen calls the reddish-brown metal “Dr. Copper” for its purported Ph.D in economics due to an “uncanny ability to predict global-economic turning points.”  – Bloomberg

Thew sharp increase in electric-vehicle registrations at the start of 2022 meant that the EV share of the overall market in the U.S. hit a historic 4.6 percent. While places like Norway—where over 86 percent of all new vehicle sales were electric in March—may laugh at that number, EV advocates know that change happens slowly, then all at once, or something like that.

Currently, it’s estimated that around 1 percent of the 250 million cars, SUVs, and light-duty trucks on American roads are electric. However, while it’s difficult to estimate future sales, an analysis by IHS Markit projects that 25–30 percent of new car sales could be electric by 2030 and then 40–45 percent by 2035. Using the rates for those projections, Reuters estimates that by 2050 more than half of the vehicles on U.S. roads could be EVs. – Car & Driver

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Don’t be fooled; the 10-year yield is the chart and market indicator to monitor. 

The Fed is no longer around to support notes and bonds, the ex-post real yield on the 10-year is still below -3.0 percent, and the spike in yields acts as a double hammer to stocks. 

First, through the economic effect of higher borrowing costs, and second, through the valuation effect as a higher interest rate to discount profits lowers stock valuations. 

The U.S. 10-year yield is the most important price in the world and has been highly distorted for many years.  It has been stunning to watch the markets focus on nominal yields rather than real yields, as they fail to realize how the coupon and TIPs market has been managed for many years.  A classic case of recency and confirmation bias. 

Stay tuned. 

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Are Stock Valuations There Yet?

You decide. 

The ratio of total US stock market valuation to GDP has been named “The Buffett Indicator” because Warren Buffett – the legendary CEO of Berkshire Hathaway (BRK.A)(BRK.B) – once called it “the best single measure of where valuations stand at any given moment.”

Essentially what it represents is the value of expected future economic activity discounted back to the present compared to the total value of current economic activity. In this sense, it is strikingly similar to the price to earnings ratio that is commonly used to value individual stocks. – Seeking Alpha

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Investors Bet On Ketamine Treatment 

Break out the Tie Dy.

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The Great Global Inflation Of 2022

In the past six months, inflation has far exceeded December 2021 expectations. In many countries, actual rates have doubled projections. European countries are particularly affected. For example, inflation in Lithuania is running at 15.5 percent annually, nearly five times the rate expected. Poland is at 11 percent and the United Kingdom at 9 percent, both well above projections. At 3 percent, Switzerland is an outlier. Asia is seeing a less severe change: Indian inflation is about 7 percent, only a bit above projections; and South Korea is at 5 percent. In China and Japan, inflation remains muted. – McKinsey & Company


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