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Investors Disregard Alerting Signs Everywhere

 
In this issue of "Sign, Sign, Everywhere A Sign. But Investors Disregard."
Bullish Bias Continues Into December
Sign, Sign, Everywhere A Sign
Portfolio Positioning Update
MacroView: The Energy Rally Is Likely Premature
Sector & Market Analysis
401k.

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3 years ago

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In this issue of “Sign, Sign, Everywhere A Sign. But Investors Disregard.”

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Catch Up On What You Missed Last Week

Bullish Bias Continues Into December

The first week of December continued its bullish advance as “bad news” became “good news.” The announcement by Pfizer (PFE) of supply chain problems was seen as “good news” as it means more demand for Government stimulus. On Friday, the dismal employment report, with no bright spots, was also “good” as it meant more demand for stimulus. The problem is that the stimulus does not create organic, sustainable economic activity. Stimulus only pulls forward future activity into the present, leaving a future void to fill. The size and scope of the stimulus discussed will not directly benefit consumers nearly to the degree seen previously. Such would leave the market very susceptible to disappointment. Nonetheless, as shown below, the markets did break out of its recent consolidation and have pushed to new highs. Such is not surprising, given we are in the midst of the seasonally strong time of year. (The following chart is a modified version from my colleague David Larew @ThinkTankCharts) The bottom panel of the chart shows a “buying panic” is currently in process. Such does not come without risk. Furthermore, the analysis from Doug Kass is an excellent summation between the media chatter and fundamental realities.

Group Stink

“There is a tendency for commentators, strategists, and others to believe ‘price is truth,’ and to respond accordingly in trading and investing. If one is consumed by the price, it is imperative to recognize the potential pitfalls to that approach and the artificial influences of that price action. But to me, this is a failing, more so today than ever, and certainly when the market’s are less friendly as passive products and strategies are the tail that wags the market’s dog. One should always question the legitimacy of short term price action, stay independent in view, and avoid becoming overly self-confident and the “Group Stink.”
Currently, the market is extremely “one-sided” as investors chase markets. As I noted yesterday, the number of stocks above their 200-dma is at the highest level seen in several years. Such is not healthy, and previous peaks have consistently preceded “unexpected declines.”
“Fear and greed ebb and flow. Fear, prevalent in March, has been replaced with greed in November.” – Doug Kass

Give Me A Sign

While we certainly want to be opportunistic and take advantage of the markets can give us, we also must remember that “crowds are wrong at peaks and troughs.” Importantly, whatever good news exists, it has already been well “priced-into the market.” As Doug notes, the underlying fundamentals are likely not supportive of current expectations, which leave the markets vulnerable to disappointment next year.
“As we look out beyond this year and into 2021-22, profit and economic expectations seem too optimistic as a number of small and large businesses have been gutted by Covid-19. The amount of private and public debt that has accumulated over the last year (and 10 years!) will serve as a governor to growth at a time in which the Federal Reserve has little ammunition left and is “pushing on a string.” Indeed, 2021 may mark a reversal of aggressive monetary easing which has been the straw that has stirred the market’s drink.” – Doug Kass
If only there were a sign?  

Sign, Sign, Everywhere A Sign.

“Sign, sign, everywhere a sign Blockin’ out the scenery, breakin’ my mind Do this, don’t do that, can’t you read the sign?” – Five Man Electric Band
Over the last couple of weeks, we have discussed the more extreme bullish positioning in markets. In this past week’s 3-Minutes video, we went through quite a few charts showing the same. Yes, there are certainly a lot of signs. On Thursday, SentimenTrader posted a great chart bringing all of this together.
“For the 1st time in 15 years, 60% of the indicators we track are showing an excessive amount of optimism. An excess of excesses.” – SentimenTrader
In the short-term, the takeaway is that bullish sentiment can, and often does, carry markets further than logic would predict. However, without exception, when “everyone is on the same side of the boat,” a reversion will occur. But that is how markets function over time. As I discussed previously, the level of speculation in the market is quite rampant as investors have no fear of a market crash. Currently, the speculative call option buying is at a record level, while put buying (a hedge against downside risk) is non-existent. That deviation has pushed the Put-Call Option ratio to a new low. Again, this doesn’t mean that a market correction is imminent; however, history shows that such extremes have led to short-term corrections or worse. All that is needed is a “catalyst” to start the selling. For now, it seems as if there is “no risk.” But it is at these periods, where your “emotional bias” is tugging you away from “logic,” that investors tend to get themselves into trouble. However, there is one thing we are watching closely.

The Volatility Signal

In a market that reaches a point of more extreme complacency, it is not surprising to see volatility drop to lower levels. However, it is when volatility becomes more depressed that the contrarian signal becomes more critical. As shown in the chart below, the volatility index ($VIX) has troughed where previous mark peaks formed. However, just because a certain level gets reached, it doesn’t mean a correction is immediate. Often, lower levels remain for some time. But, when a “buy signal” is triggered (vertical dashed lines) and volatility turns upward, it has typically been a rapid event. Also, the volatility signal is more critical when the market becomes simultaneously stretched to more extreme levels. With the market currently pushing a 3-standard deviation extreme from the 50-dma, the “stage is set” for a short-term correction. Notably, that deviation, combined with a negatively diverging RSI (top panel), and more than 90% of stocks above their 200-dma, is a warning. As the vertical lines show, the combination of these measures has previously aligned with market peaks.

Pulling It Forward

Over the past week, headlines of more stimulus have bolstered the bulls. The current proposal, which will likely get whittled down in negotiations, is $900 billion. Such a bill is far short of the original $2.2 trillion package markets had “bid up” for previously.  There are a couple of problems with a bill of this size and structure. Given the rather sharp economic recovery seen in the third quarter, the stimulus input will have a more muted impact on future activity. Also, given this bill does not have “direct checks to households,” the boost to consumption will be far less. The idea of “stimulus” also leads to a second premise of “pent up demand.”  Since consumers have been “locked down” due to the pandemic, there is a vast amount of “pent up” demand in the system. As soon as consumers are “unleashed,” they will rush into the economy and spend with reckless abandon. In a normal economic recession, such would likely be the case. However, in this cycle, the excess unemployment payments and direct checks to households led to a spending spree in houses, automobiles, and various services.  In other words, there is likely not as much “pent up” demand as market participants currently expect. If holiday retail sales are any indicator (retail makes up ~40% of PCE, which is ~70% of GDP), then consumers may be more “spent up” rather than “pent up.” 
“Black Friday in-store sales down 54.5% YOY, but all Bubblevision wants to talk about is how online was up 21.5%. Total consumer spend last holiday season was $730.7B. Online was only a little over $100B. The 21.5% increase in online is insignificant.” – TheMarketEar
 

The Instability Of Stability

I previously wrote an article on why the Federal Reserve is so dependent on stability in the financial markets.
“The ‘stability/instability paradox’ assumes that all players are rational and such rationality implies avoidance of complete destruction. In other words, all players will act rationally, and no one will push ‘the big red button.’ The Fed is highly dependent on this assumption as it provides the ‘room’ needed, after more than 11-years of the most unprecedented monetary policy program in U.S. history, to try and navigate the risks that have built up in the system. Simply, the Fed is dependent on ‘everyone acting rationally.’”
Unfortunately, the record shows that such has never been the case. , The Fed & The Stability/Instability Paradox Doug Kass made a great point on this issue last week.
“While it is clear to most how far beyond the past norms zero and negative interest rates have taken us, I think that exposition needs to go one step further to be complete. The missing element is the absence of the concept of instability of the current equilibrium created and supported by zero/negative interest rates. It is important to emphasize that, as well, how enormous the ‘distance’ financially to the next equilibrium point will be once this bizarre instability is finally disrupted – as it must be someday.  The point to be hammered home is how ‘far,’ in financial terms, it is to the more stable and natural equilibrium supported by interest rates that reflect real growth rates.  Here the operative descriptive phrase is a long way down!”

Portfolio Positioning Update

We agree with Doug’s point on instability. When reviewing the market’s more extreme positioning on so many different levels, such is why we have continued to position more defensively over the past couple of weeks. Therefore, it is at these points in the market, where investing seems like a “can’t lose” opportunity, that “risk” tends to present itself in the most unruly of fashions. It is also at these points where investors get lured away from their investment disciplines to “take on a little more risk.”  However, it is there that investors find out they have taken on much more risk than they realize. Such is why, over the last couple of weeks, we have provided you with investing rules and guidelines. These are the same rules and discipline that we use in our practice. Do they always work? Absolutely not. However, more often than not, those rules keep you from losing large amounts of capital. For now, we are carrying higher levels of cash than usual after reducing our bond duration and size and took profits in some of our more egregiously overbought equity positions. Therefore, with better positioning and lower beta, we can wait for the next opportunity to add to our equity risk. Lastly, we are watching the U.S. Dollar very closely. It is now extremely oversold with a large net-short position. Such is a prime setup for a rather sharp reversal, which would lead to lower prices in commodities, stocks, emerging markets, international6 markets, and bitcoin. But that is a story for later.

The MacroView

If you need help or have questions, we are always glad to help. Just email me. See You Next Week By Lance Roberts, CIO

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Moderna turns the spotlight on long Covid with new initiatives

Moderna’s latest Covid effort addresses the often-overlooked chronic condition of long Covid — and encourages vaccination to reduce risks. A digital…

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March 15, 2024

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Moderna’s latest Covid effort addresses the often-overlooked chronic condition of long Covid — and encourages vaccination to reduce risks. A digital campaign debuted Friday along with a co-sponsored event in Detroit offering free CT scans, which will also be used in ongoing long Covid research.

In a new video, a young woman describes her three-year battle with long Covid, which includes losing her job, coping with multiple debilitating symptoms and dealing with the negative effects on her family. She ends by saying, “The only way to prevent long Covid is to not get Covid” along with an on-screen message about where to find Covid-19 vaccines through the vaccines.gov website.

Kate Cronin

“Last season we saw people would get a flu shot, but they didn’t always get a Covid shot,” said Moderna’s Chief Brand Officer Kate Cronin. “People should get their flu shot, but they should also get their Covid shot. There’s no risk of long flu, but there is the risk of long-term effects of Covid.”

It’s Moderna’s “first effort to really sound the alarm,” she said, and the debut coincides with the second annual Long Covid Awareness Day.

An estimated 17.6 million Americans are living with long Covid, according to the latest CDC data. About four million of them are out of work because of the condition, resulting in an estimated $170 billion in lost wages.

While HHS anted up $45 million in grants last year to expand long Covid support initiatives along with public health campaigns, the condition is still often ignored and underfunded.

“It’s not just about the initial infection of Covid, but also if you get it multiple times, your risks goes up significantly,” Cronin said. “It’s important that people understand that.”

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Consequences Minus Truth

Consequences Minus Truth

Authored by James Howard Kunstler via Kunstler.com,

“People crave trust in others, because God is found there.”

-…

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35 mins ago

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March 15, 2024

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Consequences Minus Truth

Authored by James Howard Kunstler via Kunstler.com,

“People crave trust in others, because God is found there.”

- Dom de Bailleul

The rewards of civilization have come to seem rather trashy in these bleak days of late empire; so, why even bother pretending to be civilized? This appears to be the ethos driving our politics and culture now. But driving us where? Why, to a spectacular sort of crack-up, and at warp speed, compared to the more leisurely breakdown of past societies that arrived at a similar inflection point where Murphy’s Law replaced the rule of law.

The US Military Academy at West point decided to “upgrade” its mission statement this week by deleting the phrase Duty, Honor, Country that summarized its essential moral orientation. They replaced it with an oblique reference to “Army Values,” without spelling out what these values are, exactly, which could range from “embrace the suck” to “charlie foxtrot” to “FUBAR” — all neatly applicable to our country’s current state of perplexity and dread.

Are you feeling more confident that the US military can competently defend our country? Probably more like the opposite, because the manipulation of language is being used deliberately to turn our country inside-out and upside-down. At this point we probably could not successfully pacify a Caribbean island if we had to, and you’ve got to wonder what might happen if we have to contend with countless hostile subversive cadres who have slipped across the border with the estimated nine-million others ushered in by the government’s welcome wagon.

Momentous events await. This Monday, the Supreme Court will entertain oral arguments on the case Missouri, et al. v. Joseph R. Biden, Jr., et al. The integrity of the First Amendment hinges on the decision. Do we have freedom of speech as set forth in the Constitution? Or is it conditional on how government officials feel about some set of circumstances? At issue specifically is the government’s conduct in coercing social media companies to censor opinion in order to suppress so-called “vaccine hesitancy” and to manipulate public debate in the 2020 election. Government lawyers have argued that they were merely “communicating” with Twitter, Facebook, Google, and others about “public health disinformation and election conspiracies.”

You can reasonably suppose that this was our government’s effort to disable the truth, especially as it conflicted with its own policy and activities — from supporting BLM riots to enabling election fraud to mandating dubious vaccines. Former employees of the FBI and the CIA were directly implanted in social media companies to oversee the carrying-out of censorship orders from their old headquarters. The former general counsel (top lawyer) for the FBI, James Baker, slid unnoticed into the general counsel seat at Twitter until Elon Musk bought the company late in 2022 and flushed him out. The so-called Twitter Files uncovered by indy reporters Matt Taibbi, Michael Shellenberger, and others, produced reams of emails from FBI officials nagging Twitter execs to de-platform people and bury their dissent. You can be sure these were threats, not mere suggestions.

One of the plaintiffs joined to Missouri v. Biden is Dr. Martin Kulldorff, a biostatistician and professor at the Harvard Medical School, who opposed Covid-19 lockdowns and vaccine mandates. He was one of the authors of the open letter called The Great Barrington Declaration (October, 2020) that articulated informed medical dissent for a bamboozled public. He was fired from his job at Harvard just this past week for continuing his refusal to take the vaccine. Harvard remains among a handful of institutions that still require it, despite massive evidence that it is ineffective and hazardous. Like West Point, maybe Harvard should ditch its motto, Veritas, Latin for “truth.”

A society hostile to truth can’t possibly remain civilized, because it will also be hostile to reality. That appears to be the disposition of the people running things in the USA these days. The problem, of course, is that this is not a reality-optional world, despite the wishes of many Americans (and other peoples of Western Civ) who wish it would be.

Next up for us will be “Joe Biden’s” attempt to complete the bankruptcy of our country with $7.3-trillion proposed budget, 20 percent over the previous years spending, based on a $5-billion tax increase. Good luck making that work. New York City alone is faced with paying $387 a day for food and shelter for each of an estimated 64,800 illegal immigrants, which amounts to $9.15-billion a year. The money doesn’t exist, of course. New York can thank “Joe Biden’s” executive agencies for sticking them with this unbearable burden. It will be the end of New York City. There will be no money left for public services or cultural institutions. That’s the reality and that’s the truth.

A financial crack-up is probably the only thing short of all-out war that will get the public’s attention at this point. I wouldn’t be at all surprised if it happened next week. Historians of the future, stir-frying crickets and fiddleheads over their campfires will marvel at America’s terminal act of gluttony: managing to eat itself alive.

*  *  *

Support his blog by visiting Jim’s Patreon Page or Substack

Tyler Durden Fri, 03/15/2024 - 14:05

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One city held a mass passport-getting event

A New Orleans congressman organized a way for people to apply for their passports en masse.

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March 15, 2024

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While the number of Americans who do not have a passport has dropped steadily from more than 80% in 1990 to just over 50% now, a lack of knowledge around passport requirements still keeps a significant portion of the population away from international travel.

Over the four years that passed since the start of covid-19, passport offices have also been dealing with significant backlog due to the high numbers of people who were looking to get a passport post-pandemic. 

Related: Here is why it is (still) taking forever to get a passport

To deal with these concurrent issues, the U.S. State Department recently held a mass passport-getting event in the city of New Orleans. Called the "Passport Acceptance Event," the gathering was held at a local auditorium and invited residents of Louisiana’s 2nd Congressional District to complete a passport application on-site with the help of staff and government workers.

A passport case shows the seal featured on American passports.

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'Come apply for your passport, no appointment is required'

"Hey #LA02," Rep. Troy A. Carter Sr. (D-LA), whose office co-hosted the event alongside the city of New Orleans, wrote to his followers on Instagram  (META) . "My office is providing passport services at our #PassportAcceptance event. Come apply for your passport, no appointment is required."

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The event was held on March 14 from 10 a.m. to 1 p.m. While it was designed for those who are already eligible for U.S. citizenship rather than as a way to help non-citizens with immigration questions, it helped those completing the application for the first time fill out forms and make sure they have the photographs and identity documents they need. The passport offices in New Orleans where one would normally have to bring already-completed forms have also been dealing with lines and would require one to book spots weeks in advance.

These are the countries with the highest-ranking passports in 2024

According to Carter Sr.'s communications team, those who submitted their passport application at the event also received expedited processing of two to three weeks (according to the State Department's website, times for regular processing are currently six to eight weeks).

While Carter Sr.'s office has not released the numbers of people who applied for a passport on March 14, photos from the event show that many took advantage of the opportunity to apply for a passport in a group setting and get expedited processing.

Every couple of months, a new ranking agency puts together a list of the most and least powerful passports in the world based on factors such as visa-free travel and opportunities for cross-border business.

In January, global citizenship and financial advisory firm Arton Capital identified United Arab Emirates as having the most powerful passport in 2024. While the United States topped the list of one such ranking in 2014, worsening relations with a number of countries as well as stricter immigration rules even as other countries have taken strides to create opportunities for investors and digital nomads caused the American passport to slip in recent years.

A UAE passport grants holders visa-free or visa-on-arrival access to 180 of the world’s 198 countries (this calculation includes disputed territories such as Kosovo and Western Sahara) while Americans currently have the same access to 151 countries.

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