The Middle East, Data & Market Possibilities
Happy New Year! As we enter a new year and a new decade, we see the same problems continue to raise their ugly head. My daughters bought me a beautiful gift for Christmas. I put a picture below. It is a book of all the New York Times front pages on my birthday, since I was born. Unfortunately, lots of pages. I’ve looked through each one of those pages and very few do not contain a story about problems in the Middle East. The decision by the administration to retaliate for the actions Iran has taken will be debated by many. What does seem clear is Iran was looking to provoke a response, they got one and now we will see what happens. This is an escalation of the tensions between the U.S. and Iran. For our purposes here, let’s look at what is likely to happen in the investing world.
The price of oil is likely to rise. We’ve been discussing this for a while. Gold is another asset that benefits from an instability around the world. It’s also probable we won’t see any change in Federal Reserve policy, unless it’s to ease further in the coming months. The Fed could and probably should become more aggressive in lowering rates. The key thing in our economy is and always has been consumer confidence. If the consumer holds up, the markets are likely to follow. However, the markets are extended, and a pullback of some magnitude wouldn’t be unusual. My concerns continue to focus on the lack of growth in the economy.
Charts From The Week Past
We are still not seeing an uptick in much of the economic data.
Today we received the Institute for Supply Management Manufacturing Index numbers. They hit 127 month low. New orders hit new lows as well. This is a big concern as we enter 2020. The economy needs to begin to show some improvement. It hasn’t so far.
Sources: Hedgeye, Bloomberg, ISM
Sources: Hedgeye, Bloomberg, ISM
As we enter the 1st quarter earnings season remember…
Source: Hedgeye
No one knows the future but keeping our minds open to possible outcomes remains the key.
The chart below shows the S&P 500 with a breakout above 3,000 targets Fibonacci extensions above 4,000. This is a monthly chart. Much can happen before these levels are reached, if they ever are achieved.
Sources: Optuma, Allstar Charts
The chart of the S&P Mid-cap 400 also shows much higher extension price potential.
Be open to possibilities. Several back tests of the breakout point are typical.
Sources: Optuma, Allstar Charts
Euro Stoxx 50 also breaking out even in the face of terrible data.
This isn’t bearish.
Sources: Optuma, Allstar Charts
The chart below the S&P 500 shows the spread of BBB corporate bonds to treasuries at the lowest level in years.
Credit markets are currently supporting the rally in equities.
Sources: Bloomberg, Strategas
U.S. Dollar is breaking down.
In the past situations like the news from Iraq have caused the Dollar to strengthen. It has been considered a safe haven. The next few weeks will tell us if this is still the case.
Sources: Optuma, Allstar Charts
Another look at Dollar weakness.
If 96 doesn’t hold 92 looks like a logical target. This is bullish for Gold and Emerging Markets.
Sources: Bloomberg, Strategas
Renewables are now generating more electricity than coal.
Sources: U.S. Energy Information Administration, Electric Power Monthly
The amount of cash available for private equity is staggering.
1.5 Trillion Dollars. Private Equity often uses leverage of 3–5 times the cash invested. This amounts to 4.5 to 7.5 Trillion Dollars of capital to invest.
Source: Preqin
The S&P 500 starts 2020 with 2 unique conditions.
- It’s coming off a gain greater than 25%
- It’s an election year.
This has happened 5 other times in last 100 years.
Higher each time.
- 2003 +26%
- 2004 +9%
- 1991 +26%
- 1992 +4%
- 1975 +32%
- 1976 +19%
- 1955 +26%
- 1956 +3%
- 1935 +41%
- 1936 +28%
Source: @CharlieBilello
The blue line shows credit card delinquency rates by the top 100 banks.
The red line shows credit card delinquency rates for banks not in the top 100. Quite a spread in the quality of credit decisions by bank size.
Sources: Fred, St. Louis Fed
America’s Economic Output by county.
The concentrations are remarkable.
Sources: howmuch.net, Bureau of Economic Analysis
The causes of death among 25 to 34-year-olds and 35 to 44-year-olds show large increases in drug poisoning and suicide.
Here is a link to a blog post by Dr. Peter Attia, Why is life expectancy in the US declining? Interesting to say the least. Social media, particularly Facebook, bear a significant part of the blame.
Source: Peter Attia
The data, particularly in Europe isn’t getting better.
Sources: Bloomberg, Hedgeye
The market rise has been fueled by Corporations paying less in taxes and using these funds to buy back stock.
Certainly, this isn’t the only reason for the performance of equities but it’s a major factor.
Sources: U.S. Bureau of Economic Analysis, St. Louis Fed
The easing by Central Banks is bullish for Emerging Market equities.
The weaker Dollar helps as well.
Sources: BofA Global Research, Ned Davis Research, Bloomberg
The amount of debt we are accumulating will be an awful burden at some time in the future.
The question is when do we start to care.
Sources: CRFB.org, CBO
A reminder, sometimes great products don’t last forever.
Blackberry once had a 42% share of the smartphone market!
Source: Comscore Mobilens
January tends to be a good month for gold.
The situation in the middle east will add to the positive outlook.
Source: Bloomberg
Leading Economic indicators still look terrible and have had little positive movement in a few months.
Sources: Haver Analytics, Rosenberg Research
The market is a bit carried away.
Even those most bullish should expect corrections to occur as we get overbought. The news out of Iraq may provide the fuel for a pullback.
Source: USA Today
There are many issues in the world but there are also many with greater access to the basics of life than ever before.
It’s not all darkness and evil.
Source: NY Times
Weekend Homework
Why we should be optimistic about the future.
A great podcast from a16z. We can all use a little optimism on days like today. Kevin Kelly interviews Marc Andreessen at their most recent innovation Summit; they discuss the evolution of technology, key trends, and why they’re the most optimistic people in the room.
Sell It Like Serhant — I read this over the holiday. Great content and stories.
Ryan Serhant was a shy, jobless hand model when he entered the real estate business in 2008 at a time the country was on the verge of economic collapse. Just nine years later, he has emerged as one of the top realtors in the world and an authority on the art of selling. Whether you are selling a brownstone or a hot tub, golf balls or life insurance, Serhant shares the secrets behind how to close more deals than anyone else, expand your business, and keep clients coming back to you.
Sell It Like Serhant is a smart, at times hilarious, and always essential playbook to build confidence, generate results, and sell just about anything. You’ll find tips on:
- The seven stages of selling
- Getting FKD: how to be a time manager, not a time stealer
- Negotiating like a boss
- “The one who…”: everyone needs a hook
- Pulling the indecisive client forward
- And much more!
The next couple days will hold some drama as we get news from the middle east and a potential response from Iran. Monday will be here soon enough. Have a pleasant weekend.
Originally published at https://www.hightoweradvisors.com on January 4, 2020.
