Global Macro Monitor

Note the S&P traded within 9 points from its February bear market high on Monday before falling 125 points into today’s close.  The market is now in the hands of large depositors ($250k) in the regional banks.  See no evil bank balance sheets are all the rage now, and who knows what evils lurk beneath those sheets.  Therein lies the problem. Uncertainty.

The S&P index has held its 50-day moving average twice this week, including today. The KBW regional bank index is down over 30 percent since the beginning of March and put it in a nice dragonfly doji candle today, which may signal a short-term bottom, or it may not.  Watch this space.  

Aslan Capital is still on the move.  

Today’s Economist cover:

By The End Of The Decade?

America’s budget deficit is set to balloon as its population ages, the cost of handouts swells and the government’s interest bill rises.  We estimate that deficits could reach around 7% of gdp a year by the end of this decade—shortfalls America has not seen outside of wars and economic slumps. Worryingly, no one has a sensible plan to shrink them…Governments elsewhere face similar pressures, and appear just as oblivious. All are stuck in a fiscal fantasyland, and must find a way out before disaster strikes. – Economist, May 6-12

We’ve been all over this, and the chart we posted last weekend (see below) illustrates the 12-month rolling fiscal deficit is already pushing up against 7 percent of GDP. The U.S. Treasury will experience a decent seasonal surplus in April as tax receipts roll in, keeping the 12-month rolling shortfall flat (as last April’s surplus rolls off) at around 6.8 percent. Deficits don’t matter until they do, and they will.   

I used to think a U.S. government default on its obligations was about as probable as the sun not rising tomorrow, about the same probability as the Capitol being ransacked one day by a mob of igno-marauders. Not as easy to handicap now given the many crazies running the Capitol City Zoo.

It doesn’t take a genius, or Chat GPT, for that matter, to project the future timeline:  

Larger deficits –>  Monetization –> Inflation     

Data released on Monday showed South Korea’s shipments abroad fell 14.2% in April, steeper than economists’ expectations for a 12.2% decline.

Korean exports are a bellwether for international trade because the nation sells a lot of essentials for supply chains — like semiconductors, computer monitors and refined oil. Exports of chips dropped 41% last month from a year earlier after sliding 34.5% in March, pointing to still-anemic tech sector demand. – Bloomberg

The U.S. budget deficit is approaching $2 trillion on a 12-month rolling basis. Without the central bank – Fed and foreign – financing, it will eventually bite the financial markets hard.  And then there is the political issue of the debt ceiling.   Watch this space.  

Service inflation x/ energy services remain close to the February peak of  7.3 percent.  The Fed is watching.