With a weak opening ahead (-50 Dow futures) there is actually very little in the way of economic news other than a rally attempt in Japan failed overnight and German markets are closed today for Easter Monday…so discount the numbers out of Europe today.
The rest of the week looks blasé as well: We look forward to the remarks of regional Fed Neel Kashkari tomorrow, of course. He’s done a yeoman‘s job with this “Fixing Too Big to Fail.” But he may have missed the systemic “efficiencies” that are doing a lot of the Fed’s job for it. Let me explain…
You need to first understand that it’s the role of the Fed board to intervene if it looks like the markets are going to pot. Which they are. So much so, that in my work on the Peoplenomics side, we’ve penciled this in as a Bear Market.
But, it’s a slippery Bear, to be sure…and this is where we get into snookering.
Under more normal circumstances, we would have expected the market to be failing at a rate approximating 1929’s rate of decline. But, it hasn’t happened.
Being on the short side of things, where I’ve always made more money because moves better fit my attention-deficit thinking style, this is a bad thing. Personally, I figured we oughta just jump to the “end of the book” – crash this puppy – and get on with it.
The Fed, not being able to “arb” rates up quickly, may not yet be in a position where they could bail out the markets without sending interest rates negative. And that, most acknowledge, would wreck everything anyway.
Why hasn’t it happened?
The answer is simple: Stock buy-backs.
Tons of them…oodles and oodles.
They are attractive right now for some very simple reasons:
- CEO’s tend to have their comp packages tied to stock price performance. Stock buy-backs jack that up.
- With fewer shares floating about, the price of the stocks remaining, all things equal (*caeteris paribus) will be driven upward. Scarcity drives price. See your Lexus, Lamborghini, or Porsche dealer for details.
- Two recent events have encouraged the hell out of stock buy-backs. One being the recently enacted corporate tax reform. Money’s coming home.
- The other is that domestic companies were already facing the problem of “What’s left that’s worth buying?” problem. I mean, besides their own stock shares.
“Interesting THEORY Ure, but how big a deal are buy-backs?”
A few weeks back, Kiplinger’s did a write-up on 10 companies that are planning massive stock buy-backs this year. Along the way, they noted the astounding size of the pot was $173-billion for January and February alone.
When the current decline come to an end, we could very well zoom far into new record territory. That would happen if (or when) some of these companies starting peeling off the “long green” and buying shares.
The corporate stock players represent an interesting dynamic this spring for a couple of reasons:
First, if they are already buying back stock, they may be too early. Hence, they may have been snookered by the Bankers into holding up a market that really has another several percentage points down to a range that in our work runs from around 2,390 on the S&P down to around 2,270.
Secondly, if they are not yet buying their own stock back, when will they? Timing, as you know, is everything.
Overall, it still looks like one more run up is in the cards, but timing of the turn will be difficult. Though I have to say the trend channels on the Peoplenomics site MAY be useful.
Down for another month, maybe 45 days, then a grand rally that could equal the old highs. Maybe even new ones.
But the flies are everywhere and it only takes one fly to ruin the ointment.
Last week, I thought I caught sight of a fly, too. Look at 12:59 PM on the Wednesday S&P chart. Is that volume spike “normal end of quarter portfolio rebalancing” or was someone in trouble?
We don’t know – it’s one of those impossible questions – but that’s the risk. So we look at as many stories as possible that could give us hints as to the financial worthiness of major, TBTF (*too bit to fail) companies like, oh, this one.
The roll-out of the Second Depression will be different that the first one, mainly because there are so many more levers to pull. Like the president’s Work Group on Financial Markets – also known as the Plunge Protection Team.
But more levers might not make the “financial airplane” any safer to fly. The Plunge Protection Team may be a fair analog to aircraft speed brakes, but if you’re too low, FIKT (*flight into known terrain) is possible.
Especially if the new generation of “financial pilots” has never flown such a complex aircraft before. Having no sense of how all the “new controls interact” a crash remains possible.
For now, the banks have snookered Wall Street. The Corporate Tax Reform sounds like a huge payday in the financially ignorant press. But it could work out that repatriated money may be about to save the American stock markets.
All Hype, All the Time
Monday’s Collection of None-Events:
Chinese space station. Proved only that “What goes up, comes down.” Didn’t prove hype can keep winning in ratings.
Ditto the liberal non-stop predictions of the eminent end of Trump. A typical example is the NY Post running front page this morning how a “GOP Strategist to Trump” A ‘storm is coming’ in the Russia Investigation.” Like the Chinese space station, this one has almost run out of the hype-o-sphere.
It’s in the same category as the “GOP lawmaker who says republicans need to be ready for a possible democrat wave” in the mid-term congressional elections this fall.
Again, like the space station, a little early to be making those calls.
In the meantime, though, look for “anti fake news” legislation talk to pick up. Not because of lying social media, so much as keeping up with these folks: Malaysia approves anti-fake news bill ahead of elections. Coming here, too?
How to Conquer China
But not without risk as “China imposing new tariffs on U.S. products in retaliation of Trump tariffs.”
(If you’re a child, that was one of the tag lines from the old Leave it to Beaver black and white TV show…A show from the Old America.)
No day is complete without someone slamming Trump’s attempt to get a wall built. What’s in play today?
Sunday morning early, on the ham radio – still banging out Morse code because a) it’s fun and b) it’s personal digital coms – talked to a fellow in upper Michigan.
It was snowing, he told me.
No, not climate change. Weather.
If you really want something to worry about, look at the latest National Drought Monitor readings and about how the USA may have to import grain this year because farmers are planning to plant less grain.
Then there’s the Sun’s descent into what starts to look like a Maunder Minimum or something like it. But stick around – we’ll get to the update on that front when it comes out late this week or early next.
What will the desperados of capitalism monetize next when the effort at monetizing weather implodes?
TUD (Our Totally Useless Department)
Futures were down 140 when I looked (Nice! I’m short). Job numbers will dominate the end of week data – that and trade worries…
Off to outline a new book, so “moron the ‘morrow.”