This quote is always in the back of my mind, especially when volatility kicks up in an overvalued and what has been a one-way market as the “newbie geniuses” begin to mock investing legends, such as Warren Buffet as “dinosaurs.”
The newbies are almost always the last to the party and a contrarian signal of a market top. As we say, “know they marginal buyer.” The only thing we find interesting for the back book is stocks, with growing and sustainable dividends.
Short term volatility is greatest at turning points and diminishes as a trend becomes established. By the time all the participants have adjusted, the rules of the game will change again. – George Soros
When Art Cashin speaks, we listen. He is the best in the business and such a great man. If you are going to listen to any of the market pundits, Art is your guy. So great to see him back.
Here’s a little taste of “fine Art” from earlier today as he opines on the current state of the momentum market.
These charts are hard to take. Have you ever seen such dead money investments?
Here’s to hoping that if Jamie Dimon becomes Secretary of Treasury in a Biden Administration — a huge stretch given the rising power of the Democratic left — he never allows negative interest rate policy NIRP (yes, we get it, it’s theoretically the Fed’s job).
Look what NIRP has wrought, or should we say rot in Europe.
Industrial Production (IP) rose for its fourth consecutive month after March and April’s sharp contraction (Chart 1)
IP remains 7.6 percent below its December 2019 level (Chart 1)
Durable Manufacturing output was up 0.7 percent in August, led by Computers and Aerospace products (Chart 2)
Computer & Electronic Products (CEP) continue to significantly outperform all other sectors in industrial manufacturing with production up 5.5 percent y/y and 2.3 percent even during the Great Lockdown (Chart 2 & 3)
Semiconductor output grew 6.7 percent y/y in August compared to 1.8 percent for the same period in 2019 (Chart 2 & 4)
Output growth slowed significantly in August compared to June and July, which is consistent with our view the global economic rebound has plateaued and is in a holding pattern due to concerns over a second wave of the pandemic and political uncertainty (Chart 3 & 4)
It is unclear how much of the outperformance of CEP was carry forward one-off COVID purchases and precautionary supply chain stocking
Interesting data on which industrial sectors are winning during the Great Lockdown. The data are from last week’s Industrial Production release from the Federal Reserve Board.
Clearly, there has been a strong bounce from the March and April collapse, which has slowed markedly last month, and thus rules out a V-shaped recovery. The next 5-10 percent to get back to even will be much harder.
We originally posted the following in October 2018 after President Trump threw Montenegro, then the newest member of NATO under the bus a few months earlier.
We suspected POTUS’ loose lips would someday sink ships, at least metaphorically, if not literally.
The flapping of his jaws back in July 2018, we believe, triggered the geopolitical dynamics, sending a signal to Moscow and Beijing that the U.S. was not committed to its allies and we now find ourselves on the verge of a geopolitical hurricane.
As if the market didn’t have enough on its plate dealing with its extreme overvaluation and the current American political shit show.
Taiwan may be about to get hot, hot, hot in the next year after last night’s Commander in Chief’s ambiguous message on defense treaties. – GMM
One of GMM‘s most excellent followers, who we very much like and respect, responded with this:
This whole article is a science-fiction of oh, this could happen, and oh that could happen…. And we could be hit with an asteroid tomorrow. Just sit back and watch the hands that are dealt and how they are played. This article is either Sci-fi or false news. Your choice!
Montenegro
By the way, in case your wondering about Montenegro? It didn’t take a Ph.D. in international relations to figure out Trump’s interview with Fox would lather up Putin and wasn’t difficult to anticipate the outcome.
In an interview with Fox’s Tucker Carlson last night, President Trump seemed to question the raison d’être of NATO and foreign alliances in general.
Tucker Carlson: So membership in NATO obligates the members to defend any member that is attacked. So let’s say Montenegro, who joined last year, is attacked, why should my son go to Montenegro to defend it from attack?
President Trump: I understand what you are saying. I have asked the same question. You know Montenegro is a tiny country with very strong people… They may get aggressive, and congratulations you are in World War III…But that is the way it was set up, don’t forget I just got here. – The Day “Strategic Ambiguity” Died. GMM July ’18
Are you then surprised at the following?
A recent parliamentary election in Montenegro may have attracted little notice outside the country, but it will have outsized repercussions for the international order. Strongman President Milo Djukanovic has been in power for nearly 30 years at the helm of his pro-Western Democratic Party of Socialists, which lost its bid for reelection in the Aug. 30 vote, although Djukanovic will stay president until 2023. Taking the Democratic Party of Socialists’ place is a pro-Russian and pro-Serbian-led alliance, which has given Moscow an ally not just within NATO, but potentially within the European Union. It’s high time the EU wakes up and does something to stem Russian President Vladimir Putin’s creeping influence in the Balkans.
The newly formed coalition of opposition parties set to lead the small Balkan state have notionally agreed to continue Djukanovic’s pro-Western tilt, but that is unlikely to stop the festivities in the Kremlin. After all, the new coalition’s first goal, according to one of its leaders, is to lift the country’s sanctions on Russia. And although much of the Montenegrin public may be cheering the end of Djukanovic’s autocratic rule, the happiness is likely to be short-lived. Their small nation is just the latest Balkan domino to fall toward Moscow. – Foreign Policy, Sept 17th
Context From Trump’s Former National Security Advisor
Here is some excellent context from General H.R. McMaster in tonight’s 60 Minutes interview as to what is driving the increasing global geopolitical instability. McMaster is now teaching at Stanford. It’s well worth your time.
If you stare at the sky long enough, you will see pink elephants.
We don’t see pink elephants but rather trade setups, among other things, and have discovered a failproof trade.
After studying many patterns of rainbows and lightning strikes, we present the Double Rainbow Resistance Short. Sell or short when the index hits the rainbow resistance on its second try and fails to breakout. You gotta be quick, however.
Maybe, even more important, we found a new weapon or monetary tool for the Fed’s quiver, Time Reversal, but it doesn’t appear to work in propping up this asset market, especially when the index is in a Tree Pattern.
Mercado socialismo is so boring, and such an inconsistent space where professing capitalists are really closet central planners — i.e., socialists. Killing time and waiting for it.
Here’s a newbie Robinhood trader discovering the Double Rainbow setup for the first time. Note the trader can’t pull the trigger and asks 1:17 minutes in,
What does it mean?
It’s surprising with a name such as Yosemitebear he can’t pull the trigger on a short setup. Moreover, it kind of sounds he is shitfaced on liquidity or hopped up on the Fed crack.
The Atlanta Fed’s GDPNow estimate for Q3 GDP growth is currently running at 30.8 percent on an annualized basis (6.9 percent quarter-on-quarter), which will shatter by a wide margin the prior highest print on record of 16.7 percent registered in Q1 1950.
Even with such robust Q3 growth, the economy will only have recovered around 60 percent of its Q1 & Q2 losses, and real output will still be 4 percent below its Q4 2019 level.
Economy In A Holding Pattern
The easy money has been made and the heavy lifting to get the economy “back to even” on a sustained basis may take a year or two or three.
Short-term growth will now largely depend on concerns over a second wave of the pandemic and a new stimulus package as the the massive rescue package is what kept the economy from collapsing after the lights were shut off during, what the IMF has labeled, The Great Lockdown.
The Great Lockdown is expected to play out in three phases, first as countries enter the lockdown, then as they exit, and finally as they escape the lockdown when there is a medical solution to the pandemic. Many countries are now in the second phase, as they reopen, with early signs of recovery, but with risks of second waves of infections and re-imposition of lockdowns. – IMF
Once the pandemic passes, there will surely be a short-term burst of economic activity as the massive pent-up demand is unleashed provided, that is hysteresis or the permanent damage to the economy is not too significant.
Watch This [Air]space
We posted last night about our new real-time leading economic indicator and COVID fear gauge, the TSA passenger count.
Thus we now perceive and will use the passenger count data not only as a real-time indicator – using the first derivative or rate of change – of the direction of the economy but also a fear gauge of how the fear of COVID affects consumers’ choices. As the fear of the pandemic subsides air travel should pick up markedly.
Of course, the overall economy has not been hit as hard as the air travel industry and its rebound has been much sharper. – GMM
The Upshot
The GDPNow quarterly estimate is a dynamic number and will change as new economic data is released. It does, however, have a pretty good track record.
Nevertheless, even if the GDP does come in as strong as estimated, at 30 percent-plus, the economy will have only recovered 60 percent of what it lost in Q1 and Q2.
The Q3 GDP advance estimate is scheduled to be released on October 29th just a few days before the presidential election. We can already hear the crowing from 1600 Pennsylvania Avenue.
The economic illiterati do not understand downside-upside asymmetry, that is if you lose 50 percent, it takes a 100 percent to get back to even.
Global Macro Monitor 