Campus Protests Are A Microcosm Of Washington Politics That The Bulls Are Gradually Waking Up To: The Action For April 23, 2024
The Times this morning dutifully covers both sides of the student protests against Israel but fails to address the fundamental issue of US foreign policy and its alternate goals of global welfare and US national interest. The Times is no less guilty than academics themselves, who offer no objective way of evaluating foreign policy from either the moral or self-centered perspective. Instead of developing a framework for analyzing how nation-states should be structured, academics debate one another from ideological perspectives and politicians improvise foreign policies with a bias toward democracy and free trade. Such is the dilemma with Palestinians, who have used democracy to entrench terrorism and corruption, evidencing the lack of historical fidelity to participative non-hierarchical discourse that all Arab regions share, in contrast to Western Europeans and Americans.
Free-for-all student protests which allow paid agitators to masquerade as students mirrors the free for all notions of leftist academics who teach depolarization and radical democratic alternatives to the American system. Until academics agree to reach a consensus on nation-building principles the political troubles will only grow and mirror the untenable economics of getting a college degree. And this mirrors the fiscal and policy problems afflicting Biden, who can only use deficit spending to keep his coalition intact, all the while limiting resources as interest costs eat up the budget. Rising rates are already constraining equities and I see the current rally in bonds stalling soon, leading to another leg down in the ongoing correction.
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 significant upside in the near term as the VIX has declined relative to actual volatility.
S&P 500 Technicals: The top 40 in the S&P 500 look set to move the market higher.
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.
Based on the action yesterday and overnight there are some major risks the bulls need to climb over, which likely reassert themselves after earnings reports this week, 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.
Geopolitical Issues: Developments around Eurasia are a clear negative for equities.
Yesterday at the open I added to my short position via the inverse levered ETF SPXU, and after the close I added an equivalent position in the levered ETF UPRO, netting out the two positions. Consequently my current positions include 3M (MMM), Pfizer (PFE), a modest position in UPRO and a larger and moderate position in SPXU, which nets out to a modest short position in equities.