All Talk And Little Action Make For A Temporary Bull Market — The Latest On The Global Economy

While equity bulls have become artful in describing how AI will generate future earnings instead of just current costs so too the Chinese Communist Party has gotten better at manipulating markets on all talk and little action. I expect this fragile equilibrium to dissolve soon as memories of dreadful Autumns past turn the bulls back towards the sidelines. Resistance is near as the volatility risk premium points to a higher market over the next few days (though volume may be light since the VRP could easily reverse and catch investors offside), while my technical reading of key stocks in the S&P 500 is neutral. Yesterday's cross-asset action brought one positive factor for US stocks. Oil's chart is signifying global growth. But there was also one negative factor across global asset classes. Inflation expectations are rising based on measures of Treasuries and TIPS. Expect the S&P 500 to rise modestly over the next few days toward 4600 before correcting hard.

The global economy continues to deteriorate with even the green shoots revealing the weaknesses out of which they arise. For commodity and equity traders a key green shoot is forthcoming economic stimulus from China, but despite the Communist Party bruiting this idea more forcefully the key metals markets have failed to break resistance. Tellingly the same describes the Chinese stock market, which has rallied within its downtrend instead of breaking through it. The CCP can’t stimulate enough to counter the negative confidence of the people for fear of igniting higher interest rates and capital flight, making the whole effort nugatory.

The data out of South Korea belie this fact, as both exports and imports are decelerating, while Japanese policymakers unintentionally reveal the same by failing to withdraw their monetary stimulus (yield curve control). Europe is not just in a technical recession but the latest expectations readings continue to skew downward while the financial system tightens up and fewer firms see any reason to borrow and invest. And while consumer and business confidence edge up in America so too are inflation expectations, which matter much more to the Fed than euphoria over spending and AI. This afternoon the markets will get a taste of that pessimism when the Fed holds its press conference. Expect equities to correct soon as rumors of a great future succumb to realization of actual reality.

My current positions include 3M (MMM), Pfizer (PFE), and a large position in SPXU, which nets out to an extremely short position in equities.