Sizzling State Politics Matches A Sizzling Rally On Wall Street, For The Time Being: The Action For February 22, 2024
Among the frightening and sad stories in this morning’s Times is the sizzling political fight between Arizona and Manhattan that showcases the culture war that is the 2024 Presidential election. Below the obvious nonsense of national politics obstructing a murder case is the cultural theme that will resonate with many Times’ readers and those living between the Coasts, namely that leftist authorities can’t be trusted to maintain law and order. The social volatility to come this year as culture wars meet cyber attacks and media manipulation is having a foreshadowing this week as equities trade in flamboyant fashion, stretching valuations to absurd levels. Nvidia’s earnings ensure the rally lasts at least through this morning, but a major correction to such flamboyance is coming.
The bulls have control for the moment as several indicators reveal confidence in corporate earnings and the macro environment. These include:
Volatility Risk Premium: The VRP signals moderate upside as the VIX is muted relative to likely moves in actual volatility.
BTP-Bund Spread Of Italian & German Bonds: Italian default risk and a corresponding crisis for the Euro are muted, which is critical for European stability and is good for global growth.
Emerging Market FOREX / $US: Nations like India, South Korea, the Philippines and Mexico are getting stronger against the dollar, and that’s good for global growth since many key imports are priced in $.
Liquidity Metrics: Measures of money flow across the globe are trending upwards lately, which helps equities.
Based on the action yesterday and overnight there are some risks the bulls need to climb over, including:
Long-Term Treasury Rates: Long rates are rising and that will reduce the attraction of equities while cooling the housing and auto industries to the detriment of economic growth.
Geopolitical Issues: Developments around Eurasia are a clear negative for equities.
My current positions include 3M (MMM), Pfizer (PFE), a large position in UPRO and a smaller position in SPXU, which nets out to a long position in equities.