Putin’s Popularity Signals More Fiscal Spending Down The Road, And The Bulls Hope Corporations Get Their Fair Share: The Action For March 19, 2024
The Times reports that 86% of Russians approve of Putin, a shocking statistic that frames the issue of right-wing authoritarianism gripping much of Eurasia. The root reason eludes the American Left and consequently leads to our hapless foreign policies and the unintended boosting of the global right wing. As long as American public services are poor, and leftists promote polemical culture wars to deflect from the failure of their programs, the most conservative nations around the world will grab any reason for anti-Americanism we provide. Putin is the beneficiary of these culture wars and the convenient trend higher in commodity prices, a result of the global inflation during COVID and strength of the US consumer after the Biden stimulus. Biden can do little about Putin’s staying power since far from admitting public services are poor he’s expanding them into new areas of intervention, trying to satisfy the Progressive flank of the Democratic Party. The fiscal impulse is still in play for corporate profits in 2024, and for the bulls that’s all that matters. While the S&P 500 likely falls today the stage is set for a major rally unless the Fed unexpectedly throws a fit over the recent inflation today at tomorrow’s meeting.
The bears have control for the moment as several indicators reveal pessimism on corporate earnings and the macro environment. These include:
WTI Crude Prices: Oil and by extension gasoline is getting more expensive and that in itself hurts consumers and the global economy.
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.
Developed Market FOREX / $US: The dollar is getting stronger against most major currencies (€, ¥ and Renmimbi) and that’s usually bad for global growth.
Emerging Market FOREX / $US: Nations like India, South Korea, the Philippines and Mexico are getting weaker against the dollar, and that’s bad for global growth since many key imports are priced in $.
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.
Geopolitical Issues: Developments around Eurasia are a clear negative for equities.
Based on the action yesterday and overnight there are several factors that will soon flip the markets around, including:
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.
Shanghai Composite Technicals: Chinese equities are trading well and that bodes well for 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.
Tin Prices: Tin is broadly used across goods and industry and rising prices typically signal better growth prospects.
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.