A Tale Of Two Public Services That Hurts Biden Doubly And Helps The Bulls Marginally: The Action For March 14, 2024
The Times offers a remarkable contrast in public services this morning, extolling the public work of Palestinian private sector phone network technicians in Gaza while painting a comically bleak picture of the US Department Of Education staff as they try untangling their mess regarding college aid. Yet neither the Times nor the Democrats understand that chronic nature of poor public services in America, and the cultural and psychological reasons government staff lack incentives to carry out the mammoth task for public service to a diverse population that doesn’t agree on much of anything. Only when disaster hits does a first-things-first mentality homogenize government staff, resulting in work suitable for the public’s demands, as seen in Gaza. As long as the American Left harbors senseless ideas about the value of public services the 2024 election will be tight and potentially disastrous. For now this matters nothing to the bulls, who are frantically digesting the latest disinflation-in-reverse data and hoping that despite bad news everywhere they can power the S&P 500 yet higher, especially if Trump tax cuts become a larger possibility.
The bears have control this morning but very likely the bulls regain control as several indicators reveal confidence in corporate earnings and the macro environment. These include:
S&P 500 Technicals: The top 40 in the S&P 500 look set to move the market higher.
Volatility Risk Premium: The VRP signals significant upside in the near term as the VIX has declined relative to actual volatility.
MOVE Index Of Bond Volatility: Fixed income volatility is steady and implies modest inflation expectations and stable interest rates to come, potentially bullish for equities and the global economy.
High Yield Credit Spreads: The cost of borrowing is falling for lower-rated firms compared to their AAA siblings, a confident signal of an improving economy.
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.
Zinc Prices: Few commodities are as broadly important as zinc, and rising prices for zinc signal better than expected global demand, which is usually good for equities.
Copper Prices: Copper makes the energy transition happen but is also a barometer of global growth, and rising prices signal growth may be better than expected.
Tin Prices: Tin is broadly used across goods and industry and rising prices typically signal better growth prospects.
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:
Quality Of Earnings Trend: Over the past few quarters the largest firms have generally experienced worsening credit terms, margins and inventories, signaling future profit stagnation or decline.
Short-Term Treasury Rates: Short rates are rising, a portent of higher inflation and/or Fed rate hikes, potentially bearish for equities.
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.
WTI Crude Prices: Oil and by extension gasoline is getting more expensive and that in itself hurts consumers and the global economy.
Economic Data: The latest economic data regarding wholesale inflation is worse than expected, a negative sign for equities.
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 bullish position in equities.