Last week, I penned the following:
“Now, you would suspect the possibility of nuclear war might just be the catalyst to send markets reeling, but looking at the market’s reaction on Thursday, I suspect there will be t-shirts soon reading:
‘I survived the threat of nuclear war and the ‘great crash of 2017’ of 1.5%'”
Of course, as markets touched on their 50-dma, the algos kicked in hard on Monday morning sending the markets surging higher. The reason, according to the media, was the reduction in global risk as Donald Trump briefed Kim Jung-Un about the U.S.’s retaliatory response should North Korea decide to attack Guam.
I was able to acquire a copy:
And with that…. “NOMO NOKO” as Kim Jung-Un backed off his more aggressive posture, letting traders rush back into the markets to once again “BTFD.”
That excitement was short-lived.
On Wednesday, following a conflicted response by the White House to the Charlottesville, VA. protest, numerous CEO’s resigned from Trump’s economic council. The resignations eventually led to its full dismemberment.
Surprisingly, and as we have addressed in recent weeks, this was the catalyst that sparked a sharp decline on Thursday? Have investors “Lost The Faith?”
With President Trump embroiled in one entanglement after another and constrained by a deeply partisan legislature, the ability of the Administration to pass legislative agenda seems to be fading.
The reality is this was the headline. Over the last couple of months, the markets have remained on a weekly “sell signal,” at a very high level, even as stock prices continued to struggle higher amid eroding internal measures. However, the break below the “accelerated advance trend line,” as noted, suggests the current correction could accelerate IF the markets don’t regain their footing by Monday.
One note of importance is that outside of the speculative enthusiasm of investors, there has been a continuing pressure in earnings as the lack of legislative agenda advancement is beginning to weigh on Q3 estimates.
— Babak (@TN) August 15, 2017
Given the bulk of the upward push in earnings estimates since the election was based on hopes of tax reform/cuts and infrastructure spending, the realization such will not occur soon is elevating the “risk of disappointment.” Without a driver to push economic growth higher, the market has likely priced in the majority of expectations.
The repricing of expectations could be fairly brutal.
Just remember, the “running of the bulls” was the method to transport the bulls from the fields to the bull ring where they were killed later that evening.
As with the market, it’s great to be the “bull” until you get to the end of your run.
Here’s what I am reading this weekend.
- Greenspan’s Legacy Explains Current Conundrums by Danielle DiMartino-Booth via Bloomberg
- The Fed’s Job Is Getting Tougher by Lawrence Summers via Washington Post
- Fed’s Idiosyncratic Excuses by Caroline Baum via MarketWatch
- Debt Ceiling Fight, This Time Is Different by Michael Hiltzik via LA Times
- Basic Questions For GOP Tax Reformers by Albert Hunt via Bloomberg
- Danger Of A GOP Bailout Of ACA Is Mounting by Stephen Moore via The Washington Times
- Why Tax Reform Won’t Get Done by Jake Novak via CNBC
- Surviving America’s Political Meltdown by Jeffrey Sachs via Project Syndicate
- What Happens In Washington Matters To The Markets by Komal Sri-Kumar via Bloomberg
- The False Premise Of GOP Tax Cuts by Editorial via New York Times
- Greenspan: Irrational Exuberance Then & Now by Alex Pollock via Real Clear Markets
- Fed Just Released A Stark Warning About Stocks by Joe Ciolli via BI
- Trump’s Economy Looks A Lot Like Obama’s by USA Today
- Will The Economy Recover In The 2nd Half? by Bryce Coward via Knowledge Leaders
- It’s Over Between Trump & The GOP by Sara Fagen via CNBC
Thoughts On Long-Term Investing
- Charts Say S&P Headed For A Pullback by Avi Gilburt via MarketWatch
- Hussman Predicts Massive Losses As Cycle Completes by Tyler Durden via ZeroHedge
- Rally Won’t Last Without Some Help by Komal Sri-Kumar via Bloomberg
- Shiller vs Siegel by YahooFinance
- 6-Reasons Selloff May Just Be Getting Started by Michael Brush via MarketWatch
- 5-Charts That Suggest Bubble Still Growing by Craig Wilson via Daily Reckoning
- Markets Don’t Crash From All-Time Highs by Charlie Bilello via Pension Partners
- Consider This A Wake-Up Call by Michael Kahn via Barron’s
- The Outlook For Stocks For The Rest Of 2017 by Simon Constable via US News
- Single Biggest Bullish Catalyst For Oil by Nick Cunningham via OilPrice.com
- A Bear Market Could Hit Stocks At Any Time by Mark Hulbert via MarketWatch
- Worst Thing You Can Do Right Now by Michael Foster via Forbes
- After 100-Months Of Buying Dips, Peak Crazy by David Stockman via Daily Reckoning
- Not Contrarian Just To Be Contrarian by Doug Kass via The Street
- This Is Why It’s So Hard To Be A Contrarian by Stefan Cheplick via Medium
Research / Interesting Reads
- When Will The China Bubble Blow Up by Wolf Richter via Wolf Street
- Taxpayers Are Getting “Conn”ed By FoxConn by Michael Hiltzik via LA Times
- The Transformation Of The American Dream by Robert Shiller via NYT
- Economic Reality Hits “Fight For $15” by IBD
- Risks Are Rising While Low Risks Are Discounted by Ray Dalio
- Lessons From Stanley Druckenmiller by Macro Ops
- FLASH CRASH: Seth Klarman Weighs In On HFT by Jody Chudley via Daily Reckoning
- Bitcoin Will Never Be A Safe Haven by Mark Spitznagel via Mises Institute
- Is The Dream Of Ownership In Decline? by Heather Long via Washington Post
- SEC Concludes Volker Rule’s Effects Are Unknown by Peter Ireland via Economics21
- Exposed: Elites Plan To Freeze The Financial System by James Rickards via Daily Reckoning
- 3 Signs Of Retirement Disillusionment by Donna Fuscaldo via Investopedia
- Still Too Much Risk In The Financial System by Mohamed El-Erian via Bloomberg
- Singer: “I’m Very Concerned About The Global Economy by Tyler Durden via ZeroHedge
- Investors Shifts Have Foretold Of Past Corrections by John Hussman via Hussman Funds
- Tech Rally Getting Thin? by Dana Lyons via Tumblr
- The Great Passive Investing “Bait & Switch” by Jesse Felder via The Felder Report
“While some might mistakenly consider value investing a mechanical tool for identifying bargains, it is actually a comprehensive investment philosophy that emphasizes the need to perform in-depth fundamental analysis, pursue long-term investment results, limit risk, and resist crowd psychology.” – Seth Klarman