March 11, 5:00 pm EST

We ended last week with a 4.4% plunge in Chinese stocks.  What followed, Friday morning (EST time), was an announcement that the Fed Chair (Jerome Powell) would be appearing on an exclusive 60 Minutes sit down interview Sunday night.

This is a rare occurrence, that the Fed Chair does a mainstream media interview/Q&A.  These Q&A’s are typically done in Congressional hearings, following Fed meetings or at select economic conferences.  The common theme:  He speaks economics and policy to economic and policy practitioners.

With that, this interview with 60 Minutes was clearly a desire to speak to the broader public.  In part, it was a response to the growing risks of a confidence shock (given the December stock market decline, Brexit drama and China/U.S. trade uncertainty).  It was an opportunity to tell the public that the economy is doing well, despite the media’s doom and gloom stories.

Also, in part, it was an opportunity to tell the public that the Fed is there to defend against shocks and panics, and that they won’t be swayed by politics.

Powell was also specifically asked about a few of the cherry picked data points the financial media has been parading around in recent days.  As we discussed Friday, without context, some of the data can sound ominous.  He added context, including for the  dip in retail sales from December.  Of course the retail sales hit was the result in the knee-jerk swing in confidence that comes with the December plunge in the stock market.  He said they would be watching the January number closely.  The January number today, indeed, was strong.

That (the interview and the confirmation of the retail sales data) was a catalyst for a big bounceback in stocks today.

Powell is following the script of the Ben Bernanke.  When Bernanke was directing the Fed through the storm of the financial crisis, he (and the Fed) were being killed in the media.  And the media set the tone for global leaders to take shots at the Fed too.  So, Bernanke took to 60 minutes to speak directly to the people – to set the record straight.  That interview set the bottom in the stock market — and it turned the tide in global sentiment.

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August 21, 2017, 6:00 pm EST                                                               Invest Alongside Billionaires For $297/Qtr

After a week away, I return to markets that look very similar to where we left off 10 days ago.  Stocks lower.  Yields lower.  The dollar lower. But commodities higher!

Now, this takes into account, another week of political volatility in Washington.  It takes into account another week of uncertainty surrounding North Korea.

What’s important here, is distinguishing between a price correction and a real thematic change.  If we’re not making new record highs in stocks every day, and stocks actually retrace 5% or so, does that represent the derailing of the slow but steady economic recovery and, as important, the dismissal of potential policy fuel that could finally lift us out of the post-crisis stall speed growth regime?

The narrative in the media would have you believe the answer is yes.

But the reality is, the economic recovery is stable and continuing.  The policy stimulus has been a tough road, but continues to offer positive influence on the economy.  And there are strong technical reasons to believe we’re seeing the early stages of a price driven correction in stocks.

Remember, we looked at the big technical reversal signal (the “outside day”) back on August 8th.  That was the technical signal, and it was about as good a signal as it gets.  The Dow had been plowing to new highs for eleven consecutive days — culminating in another new record high before.  And the last good ‘outside day’ in the S&P 500 was into the rally that stalled December 2, 2015 and it resulted in a 14% correction.

Here’s another look at that chart, plus the first significant trend line that we discussed in my last note, August 11th.

aug21 spx

I thought this line would give way, which it has today, and that we would see a real retracement, which should be a gift to buy stocks.  If you’re not a highly leveraged hedge fund, a 5%-10% retracement in broader stocks is a gift to buy.  Remember, the slope of the S&P 500 index over time is UP.

Prior to the reversal signal in stocks, we had already addressed the influence of the FAANG stocks.  And I suggested the miss in Amazon earnings was a good enough excuse to cue the profit taking in what had been a very lucrative trade in the institutional investment community.  Amazon is now down 12% from the highs of just 18 days ago.

What should give you confidence that the economic outlook isn’t souring? Commodities!

The base metals, as we’ve discussed in recent weeks, continue to move higher and continue to look like early stages of a bull market cycle — which would support the idea that the global economic recovery is not only on track, but maybe better than the consensus market view (which seems to be still unconvinced that better times are ahead).

The leader of the commodities run is copper.  We looked at this chart in my last note (Aug 11).  I said, “this big six-year trend line in copper (below) will be one to watch closely.  If it breaks, it should lead the commodities trend higher.”

aug 11 copper

Here’s an updated chart of Copper.  This trend line was broken today.

aug21 copper

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May 16, 2017, 4:00pm EST               Invest Alongside Billionaires For $297/Qtr


BR caricatureThe noise surrounding the Trump administration continues by the day, as the media tries desperately to prosecute the elected President at daily briefings.The chaos and dysfunction message is loud, but markets aren’t hearing it.  The real story is very different. Stocks continue to surge. Stock market volatility continues to sit 10-year (pre-crisis) lows. The interest rate market is much higher than it was before the election, but now quiet and stable.  Gold, the fear-of-the-unknown trade, is relatively quiet.  This all looks very much like a world that believes a real economic expansion is underway, and that a long-term sustainable global economic recovery has supplanted the shaky post-crisis (central bank-driven) recovery that was teetering back toward recession.

Why is the messaging so different?  Remember, the financial media and Wall Street are easily distractible. Not only do they have short attention spans, but they’ve been trained throughout their careers to find new stories to obsess about. They need to interpret, pontificate, strategize to feel valued. Approaching their jobs with the idea that a slow moving dominant theme is at work is just too boring.

This is the disconnect between markets and the narrative.  We have major central banks around the world that continue to print money.  These central banks buy assets with that freshly printed money.  That means, stocks, bonds, commodities go higher.  And now we have everyone’s fate (the global economy) tied to the outcome of new policies from the leading economy in the world – efforts to restore sustainable growth through structural reform and fiscal stimulus. That hopeful outlook does nothing but underpin the rise in asset prices (stocks, bonds, commodities, real estate).

​Yesterday we got a look under the hood of the portfolios of the biggest money managers in the world, via their 13F filings (required quarterly portfolio disclosures to the SEC).  It’s been clear that the biggest and best, embrace this big theme, and have been aggressively positioning to take advantage of the very bullish proposed policy tailwinds for stocks, which are: 1) a corporate tax rate cut, which will go right to the bottom line for profitable companies.  Not surprisingly, which stocks have been leading the way in the climb in the indicies?  The one’s that make a lot of money (Apple, Microsoft, Google).  2) a repatriation tax holiday that will bring back trillions of dollars onshore, to be paid back to shareholders and put to work in the economy through investment and projects.  3) a trillion dollar infrastructure spend that, regardless of how difficult it may be to legislate, should happen in one form or another.

​Among the reports on portfolio holdings yesterday, we heard from the Swiss National Bank.  As I said above, don’t forget there are still central banks deeply entrenched in QE and, beyond local government bonds, are buying foreign assets (in large amounts).  Switzerland’s central bank has more freshly printed money to put to work every quarter, and has been increasing their allocation to equities dramatically – $80 billion of which is now (as of the end of Q1) in U.S. stocks!  That’s a 29% bigger stake than they had at the end of 2016.  The SNB is the world’s eighth biggest public investor.

So keep this big theme in mind:  Central banks remain involved, but the baton has been passed, from a central bank-driven recovery to a fiscal stimulus-driven recovery.  And everyone needs it to work.


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