It’s Raining In The Desert As Surreal Climate Reality Helps Displace The Bulls Surreal Belief In The Global Economy: The Action For April 18, 2024
The Times reports with a soupcon of amusement the astonishing rainfall disaster impacting the United Arab Emirates and travelers through Dubai International Airport. Climate change is now a reality in the UAE and makes its cloud seeding technology seem absurdly wasteful and out of touch with the climate reality long noted by scientists around the world. That even a desert nation could find natural rainwater toxic to its way of life illustrates the vector of disaster the world must mitigate in the decades to come. Since climate change affects not just basic costs across economic sectors but also drives migration and resulting political instability, it’s a potential disaster for financial markets unless technology can save the day. And if the UAE is any indication then technology cannot mitigate climate change but can potentially waste even more resources. These worries dovetail with the geopolitical horrorshow that has finally dawned on the bulls and sent the S&P 500 into a mild correction. Unless events across Eurasia improve the index is likely to consolidate for a few more hours but eventually fall to 5000 and give the bulls an opportunity to show they really mean to buy the dip.
The bulls have control for the moment as several indicators have turned around modestly to reveal a trace of confidence in corporate earnings and the macro environment. These include:
Shanghai Composite Technicals: Chinese equities are trading well and that bodes well for the global economy.
WTI Crude Prices: Oil and by extension gasoline is getting cheaper and that in itself helps consumers and the global economy.
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.
But based on the action yesterday and overnight there are several risks the bulls need to climb over, including:
S&P 500 Technicals: The top 40 in the S&P 500 look set to move the market lower.
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.
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 re a clear negative for equities.
Yesterday afternoon I sold my recent position in the inverse-levered ETF SPXU. Consequently my current positions include 3M (MMM), Pfizer (PFE), and a smaller but still moderate position in SPXU, which nets out to a modest short position in equities.