MARKETS/CENTRAL BANKS/EARNINGS

We are being told we are in an earning’s recession.

We are being told the economy is going into recession.

We are being told the rest of the world is in trouble.

We are being told the market has to drop because of all this.

We have a response to all this. No it doesn’t. (We’ll explain in just a few!)

We have another response to some of this. Except for the U.S. going into a recession and except for the market having to drop, they are correct.

Earnings have been heading south. Earnings are soft. Guidance has been coming down. Many areas of the world are in economic trouble. The numbers out of places like Germany are abysmal. Many believe as Germany goes, Europe goes. Asia is softer. We expect the U.S. gdp to be softer though we are still growing with employment remaining strong.

But the market…the market is another story. In fact, our market has been broadening out. Economically sensitive areas are now emerging. INDUSTRIALS and now even the lagging TRANSPORTS look like they want to emerge. What gives? Do we need to say it again? We will say it again. Easy money…easier money and easiest money. Before we mention Bernanke (we mean Powell), it is important to know that:

EUROPE, which had been telling the world for months that they were ready to normalize…did a 180. Not only are rates still negative but they have all but stated they will go more negative. Talk about giving cocaine to a cocaine addict. On top of that, Lagarde now goes from the IMF to the ECB where she will make Draghi look like Volcker. Germany’s 10 year is yielding negative.

Japan? Japan remains in the abyss of easy money with negative rates while the BOJ owns over half of Japanese ETFs and almost 5% of their whole market.

Chinese officials have gone all in. We only know what is reported but they have been adding trillions into the system…and quickly. Remember, Bernanke was only adding a trillion each year.

Australia lowered rates. India lowered rates. Over $13 trillion of debt is negative. And then there is Powell and the markets. It’s very simple. As we have been telling you forever, whenever the market gets in trouble, the Fed comes to the rescue. They do not even hide it any more. The amazing thing is that it is still working after 10 years. Do not go any further than that.

Markets were imploding in the 4th quarter of 2018. Not just equities but credit. To be clear, the bubble makers know they can not lose the credit markets and all the leverage they have enabled. As markets continued to swoon in Christmas eve day, Mnuchin called a meeting with what is affectionately known as the WORKING GROUP ON FINANCIAL MARKETS. On Christmas day, not by chance, not by accident, a news report was floated that the Fed would change their stance from “raising rates a few times in 2019” to “patience!” Yes…they did this on Christmas day. The market bottomed the next day. To the day of their change of stance, the market bottomed. On January 4th, at 10 am, Powell confirmed the story they planted into the media on Christmas day. That morning, we easily came off our bearish stance as Powell gave some b.s. about he was worried about the economy. HE WAS WORRIED ABOUT MARKETS. 1st quarter GDP eventually came in at 3.2%.

Markets rallied into the end of April. Not once did we hear anything about the Fed needing to change their stance. In fact, all we heard from them was that everything was fine. And then came May. A 7-10% correction ensued…and that was enough to scare the crap out of them. Again, by no accident and on purpose and out of nowhere, on June 3, Powell sent a guy named Bullard (ST LOUIS FEDHEAD) out to do his bidding. Bullard came out and announce “the chance” for another pivot. This time, they would go from “patience” to “lowering rates!” Guess what the market did THAT DAY? It bottomed. The market has not looked back. And now with Powell confirming the lowering of rates at the end of July, the market is now broadening out on the bet that again, easier money will do the trick. Amazing? Not so much. It has been occurring for more than 10 years. These central bankers know they still have the big money listening so whenever markets get in trouble, they go to their default setting. Of course, all this easy money continues to enable gargantuan debt around the globe that is a guarantee to crash the market down the road…but for now, nothing doing. Just know this is not about an economy. It is not about earnings. It is not about tax cuts. This is all about the markets moving to the day off a central bank that could not even let a market drop more than 7-10%.

In recent weeks, we had been telling you it has been a large cap affair. It still is as small and mid caps continue to lag. But the lagging TRANSPORTS and INDUSTRIALS are now coming on as a bunch of names have come out of bases. We suspect the large amount of cash on the sidelines are making the bet that this area comes out of its slumber. On top of that, we are now noticing the lagging FINANCIALS starting to wake up as rates on the long end have started to tick up. Just keep in mind, it is now earning’s season where thousands of names report. We promise a lot of jello moving on the plate.