March 24: Daily Contrarian Reads

Five Charts Which Scream “This Is It!”

The S&P 500 and DJIA haven’t seen a 1% drop since October 2016. For some perspective, Hillary Clinton was the presidential frontrunner the last time markets fell 1%. This is the longest such streak for both indices in over 20 years. In February, the DJIA recorded its longest “winning streak” since 1987. It closed 2,000 points above its 200-day moving average for the first time ever. Also in February, the combined market cap of the S&P 500 topped $20 trillion for the first time. Its market cap has increased by over $2 trillion since the election—staggering……This tells us that the current rally can be largely attributed to “valuation expansion.” Indeed, around 60% of the gains since 2009 have come from this source. At the same time, earnings growth has been anemic. From 2012–2016, annual earnings growth was just 0.49%. In comparison, from 1995–1999, growth was 9.5%.

“Trump Trade 1.0” Is Over —–What Comes Next?

The stock market may not be a casino, but 21 is the game of the day.  That’s how many House votes the Republicans can afford to lose from their own party and still pass the American Health Care Act on Thursday.  The cause of today’s sell-off is simple: there seems to be more like 25 “Nay” votes coming from the right wing of the GOP…… US equities have been priced for perfection since the start of 2017 and today was a rude reminder that the legislative process is imperfect on even its best days. It’s not just a current year multiple of 17.9x that makes valuations feel toppy. It’s also that analysts have been cutting numbers of late.  Earnings momentum is the bedrock of most equity rallies, but the drip-drip-drip of negative revisions has eroded that foundation.  The low volume/low volatility melt-up for US stocks had lulled traders and investors into a temporary complacency, now shattered. Immediately after the US Election last November, many market observers thought we would see the dawn of a new era of market volatility based on the unpredictability of the new President.  After some sector rotation that accompanied the initial rally, however, the “Trump Trade” began to resemble the sleepwalking “Fed Put” market of much of the last 8 years.  All that came to an end today with the realization that the Trump economic agenda will need to pass through Washington’s political process and (worse yet) we will all have to watch and worry as it does so.

We Did It Again! Fed Head Admits It’s Generating Another Commercial Real Estate Bubble

Last year, Boston Fed President Eric Rosengren — considered a “dove” on the Fed’s policy-setting committee — started warning about the commercial real-estate bubble in the US and what its demise could do to banks. But in his speech on Financial Stability on March 22 in Indonesia, he added what I’ve come to call “Housing Bubble 2” to his ever more emphatic concerns……Financial institutions hold $3.8 trillion of CRE loans (including multi-family residential) and $10.3 trillion of home mortgages. So this is a $14-trillion problem. The $3.8 trillion of CRE loans are primarily held by….

Here Comes Trump Trade 2.0—-The Technical Basis For A Deeper Stock Pullback

“For some time, we have spoken out against jumping on the bear-market bandwagon. However, in recent days the market is sending us some signals that could suggest a deeper pullback is on its way,” she says. Among the signs that have given her pause, the Treasury yield curve yesterday reached its narrowest level since the end of February. Meanwhile, the traditional leading indicator, the Dow Jones Transportation Average DJT, +0.63%, is down more than 7% in the last three weeks, Brooks told clients in a note. Persistent selling pressure all month, accompanied by a fall below the 100-day moving average for the DJT, has prompted Brooks’s team to stand up and take notice. “If this historical relationship is maintained, then this bodes ill for the broader U.S. indexes,” she said.

Red Versus Blue America—It’s A Culture Clash Like Never Before

Frankly we should analyze those things, but I think they’re basically all lies. In fact, he’s just a businessman, flying by the seat of his pants. He doesn’t have a core philosophy. What’s going on in the US now is a culture clash. The people that live in the so-called “red counties” that voted for Trump—which is the vast majority of the geographical area of the US, flyover country—are aligned against the people that live in the blue counties, the coasts and big cities. They don’t just dislike each other and disagree on politics; they can no longer even have a conversation. They hate each other on a visceral gut level. They have totally different world views. It’s a culture clash.

Red Ponzi wobbling—PBOC Losing Control Of Soaring Leverage Levels

Reining in China’s record debt binge was never going to be easy. The need for stronger action is becoming clear at China’s financial regulators, with further steps likely thanks to leverage that continues to mount. First in the line of fire was the bond market, which had its worst month since 2010 in December as officials tightened up liquidity in money markets. This week, smaller banks got caught in the cross hairs as some were said to have missed debt payments amid a surge in interbank rates, spurring an injection of emergency cash from the central bank. And more bond pain is in store after a shift in collateral rules.

Donald Trump’s  19th Century “Whig” Is Showing

In channeling Lincoln, Trump underscored the reversion of the Republican Party to its economic roots which embraced protectionism, state-sponsored infrastructure spending, and central banking. While a new party in Lincoln’s day, its economic philosophy derived directly from the Whig Party and its champion, Henry Clay. Thomas DiLorenzo’s excellent book, The Real Lincoln, chronicles and exposes the Republican-Whig economic platform, known then as the “American System” (the local flavor of mercantilism). While it is unlikely Lincoln addressed the issue of slavery before 1854, he constantly discussed and advocated the American System. As early as 1832, he called for an “internal improvements system and a high protective tariff.” The “improvements” specifically referred to the infrastructure of the day: railroads, shipping, and canals.

The CHA (Central Hacking Agency) At The CIA—Inside “Vault 7”

WikiLeaks dropped a bombshell on the U.S. Central Intelligence Agency. Code-named “Vault 7”, the whistleblowing site began releasing the largest publication of confidential documents, that have come from the top secret security network at the Cyber Intelligence Center. Long before the Edward Snowden revelations, Julian Assange noted how “The Internet, our greatest tool of emancipation, has been transformed into the most dangerous facilitator of totalitarianism we have ever seen.” He decried the militarization of the Internet with the penetration by the intelligence agencies like NSA and GCHQ, which created “a military occupation of civilian space”….. With an ability to hack any Android or iPhone, as well as Samsung TVs and even cars, they spy on citizens, bypassing encrypted messaging apps like Signal and Telegram. The Vault 7 leaks that exposed the CIA’s excessive power….

Too Much Confidence In “Confidence”

Thus, consumers express high amounts of optimism because after a decade it just has to go right eventually, as they simply cannot believe the economy will stay down forever. And yet, they know “something” isn’t quite right, still, so while they say they are optimistic in these kinds of situations they sure don’t act on it. It’s more of a “wait and see” approach, which makes sense in contrast to something like stocks where the presumed downside of “wait and see” is minimal (shorter memories). After the general experience of the housing bubble, by contrast, many people have learned and further have retained the lessons of the downside of buying up in real estate no matter how good they really want to feel about Janet Yellen’s public take on the unemployment rate. Despite what consumer confidence indices make out, there is a discrepancy that over the past few years is as compelling as it is consistent.

History Note: Rockefeller, Morgan And War

During the 1930s, the Rockefellers pushed hard for war against Japan, which they saw as competing with them vigorously for oil and rubber resources in Southeast Asia and as endangering the Rockefellers’ cherished dreams of a mass “China market” for petroleum products. On the other hand, the Rockefellers took a noninterventionist position in Europe, where they had close financial ties with German firms such as I.G. Farben and Co., and very few close relations with Britain and France.